UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 10-Q

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

For the Quarterly Period Ended December 31, 2021

or

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

For the transition period from                       to                     

Commission file number: 1-35040

PHENIXFIN CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware	27-4576073
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
445 Park Avenue, 10th Floor, New York, NY	10022
(Address of Principal Executive Offices)	(Zip Code)

(212) 859-0390

(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	PFX	The NASDAQ Global Market
6.125% Notes due 2023	PFXNL	The NASDAQ Global Market
5.25% Notes due 2028	PFXNZ	The NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

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

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

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

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 Securities Exchange Act of 1934). Yes ☐ No ☒

The Registrant had 2,503,745 shares of common stock, $0.001 par value, outstanding as of February 8, 2022.

PHENIXFIN CORPORATION

TABLE OF CONTENTS

	Page
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Assets and Liabilities as of December 31, 2021 (unaudited) and September 30, 2021	1
Consolidated Statements of Operations for the three months ended December 31, 2021 and 2020 (unaudited)	2
Consolidated Statements of Changes in Net Assets for the three months ended December 31, 2021 and 2020 (unaudited)	3
Consolidated Statements of Cash Flows for the three months ended December 31, 2021 and 2020 (unaudited)	4
Consolidated Schedules of Investments as of December 31, 2021 (unaudited) and September 30, 2021	5
Notes to Consolidated Financial Statements (unaudited)	17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3. Quantitative and Qualitative Disclosures About Market Risk	64
Item 4. Controls and Procedures	64
Part II. Other Information
Item 1. Legal Proceedings	65
Item 1A. Risk Factors	65
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3. Defaults Upon Senior Securities	70
Item 4. Mine Safety Disclosures	70
Item 5. Other Information	70
Item 6. Exhibits	71
SIGNATURES	73

i

PHENIXFIN CORPORATION

Consolidated Statements of Assets and Liabilities

	December 31, 2021 (Unaudited)			September 30, 2021
Assets:
Investments at fair value
Non-controlled, non-affiliated investments (amortized cost of $128,348,470 and $92,214,167, respectively)	$	120,418,943		$	84,152,678
Affiliated investments (amortized cost of $46,411,711 and $75,963,427, respectively)		17,569,686			57,595,245
Controlled investments (amortized cost of $66,991,021 and $39,490,097, respectively)		37,410,426			9,891,860
Total Investments at fair value		175,399,055			151,639,783
Cash and cash equivalents		59,380,000			69,433,256
Receivables:
Paydown receivable		3,885,645			292,015
Interest receivable		533,347			371,576
Dividends receivable		220,459			81,211
Due from Affiliate		137			-
Fees receivable		-			1,872,700
Other receivable		1,293			-
Other assets		1,242,845			1,401,746
Total Assets	$	240,662,781		$	225,092,287
Liabilities:
Notes payable (net of debt issuance costs of $2,380,843 and $412,795, respectively)	$	77,640,957		$	77,434,005
Interest and fees payable		385,729			-
Deferred revenue		386,156			-
Due to broker		12,089,033			1,586,000
Due to affiliates		-			280,323
Administrator expenses payable (see Note 6)		127,965			67,920
Accounts payable and accrued expenses		922,416			1,416,524
Other liabilities		613,534			613,534
Total Liabilities		92,165,790			81,398,306
Commitments and Contingencies (see Note 8)
Net Assets:
Common Shares, $0.001 par value; 5,000,000 shares authorized; 2,723,709 shares issued; 2,517,221 common shares outstanding		2,517			2,517
Capital in excess of par value		688,866,642			688,866,642
Total distributable earnings (loss)		(540,372,168	)		(545,175,178	)
Total Net Assets	$	148,496,991		$	143,693,981
Total Liabilities and Net Assets	$	240,662,781		$	225,092,287
Net Asset Value Per Common Share	$	58.99		$	57.08

The accompanying notes are an integral part of these consolidated financial statements.

1

PHENIXFIN CORPORATION

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended December 31
	2021			2020
Interest Income:
Interest from investments
Non-controlled, non-affiliated investments:
Cash	$	1,015,692		$	1,671,813
Payment in-kind		138,511			170,029
Affiliated investments:
Cash		122,147			352,291
Payment in-kind		97,028			-
Controlled investments:
Cash		553,638			1,190
Total interest income		1,927,016			2,195,323
Dividend income		702,930			10,263,501
Interest from cash and cash equivalents		2,739			940
Fee income (see Note 9)		270,122			341,464
Other income		230,434			-
Total Investment Income		3,133,241			12,801,228
Expenses:
Base management fees (see Note 6)		-			1,146,403
Interest and financing expenses		1,487,675			2,017,641
General and administrative expenses		196,559			377,934
Salaries and Benefits		505,875			-
Administrator expenses (see Note 6)		68,866			484,412
Insurance expenses		158,904			485,012
Directors fees		208,500			475,717
Professional fees, net (see Note 8)		306,751			(515,622	)
Total expenses		2,933,130			4,471,497
Net Investment Income		200,111			8,329,731
Realized and unrealized gains (losses) on investments
Net realized gains (losses):
Non-controlled, non-affiliated investments		484,513			3,893,722
Affiliated investments		14,737,897			(10,452,928	)
Controlled investments		925			(40,147,570	)
Total net realized gains (losses)		15,223,335			(46,706,776	)
Net change in unrealized gains (losses):
Non-controlled, non-affiliated investments		131,963			(4,057,063	)
Affiliated investments		(10,473,843	)		(2,118,324	)
Controlled investments		17,641			38,236,935
Total net change in unrealized gains (losses)		(10,324,239	)		32,061,548
Loss on extinguishment of debt (see Note 5)		(296,197	)		(122,354	)
Total realized and unrealized gains (losses)		4,602,899			(14,767,582	)
Net Increase (Decrease) in Net Assets Resulting from Operations	$	4,803,010		$	(6,437,851	)
Weighted Average Basic and diluted earnings per common share	$	1.91		$	(2.36	)
Weighted Average Basic and diluted net investment income (loss) per common share	$	0.08		$	3.06
Weighted Average Common Shares Outstanding - Basic and Diluted (see Note 11)		2,517,221			2,723,709

The accompanying notes are an integral part of these consolidated financial statements.

2

PHENIXFIN CORPORATION

Consolidated Statements of Changes in Net Assets

(Unaudited)

	Shares		Par Amount		Capital in Excess of Par Value		Total Distributable Earnings/(Loss)			Total Net Assets
Balance at September 30, 2021		2,517,221	$	2,517	$	688,866,642	$	(545,175,178	)	$	143,693,981
OPERATIONS
Net investment income (loss)		-		-		-		200,111			200,111
Net realized gains (losses) on investments		-		-		-		15,223,335			15,223,335
Net change in unrealized appreciation (depreciation) on investments		-		-		-		(10,324,239	)		(10,324,239	)
Net loss on extinguishment of debt		-		-		-		(296,197	)		(296,197	)
Total Increase (Decrease) in Net Assets		-		-		-		4,803,010			4,803,010
Balance at December 31, 2021		2,517,221	$	2,517	$	688,866,642	$	(540,372,168	)	$	148,496,991
Balance at September 30, 2020		2,723,709	$	2,724	$	672,381,617	$	(521,764,824	)	$	150,619,517
OPERATIONS
Net investment income (loss)		-		-		-		8,329,731			8,329,731
Net realized gains (losses) on investments		-		-		-		(46,706,776	)		(46,706,776	)
Net change in unrealized appreciation (depreciation) on investments		-		-		-		32,061,548			32,061,548
Net loss on extinguishment of debt		-		-		-		(122,354	)		(122,354	)
Total Increase (Decrease) in Net Assets		-		-		-		(6,437,851	)		(6,437,851	)
Balance at December 31, 2020		2,723,709	$	2,724	$	672,381,617	$	(528,202,675	)	$	144,181,666

The accompanying notes are an integral part of these consolidated financial statements.

3

PHENIXFIN CORPORATION

Consolidated Statements of Cash Flows

(Unaudited)

	For the Three Months Ended December 31
	2021			2020
Cash Flows from Operating Activities:
Net increase (decrease) in net assets resulting from operations	$	4,803,010		$	(6,437,851	)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Investment increases due to payment-in-kind interest		(235,539	)		(170,029	)
Net amortization of premium (discount) on investments		2,072			-
Amortization of debt issuance cost		41,698			157,441
Net realized (gain) loss from investments		(15,223,335	)		46,706,776
Net unrealized (gains) losses on investments		10,324,239			(32,061,548	)
Proceeds from sale and settlements of investments		77,579,123			74,062,744
Purchases, originations and participations		(96,205,833	)		(1,335,311	)
Loss on extinguishment of debt		296,197			122,354
(Increase) decrease in operating assets:
Other assets		158,901			417,626
Interest receivable		(161,771	)		385,710
Other receivables		(1,293	)		-
Receivable for paydowns		(3,593,630	)		-
Fees receivable		1,872,700			12,500
Dividends receivable		(139,248	)		-
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses		(494,108	)		(1,207,374	)
Interest and fees payable		385,729			(801,805	)
Management and incentive fees payable, net		-			(245,619	)
Administrator expenses payable		60,045			327,447
Deferred revenue		386,156			24,921
Due to affiliate		(280,460	)		(53,083	)
Due to broker		10,503,033			-
Net cash provided by (used in) operating activities		(9,922,314	)		79,904,899
Cash Flows from Financing Activities:
Debt issuance		57,500,000			-
Paydowns on debt		(55,325,000	)		(74,151,822	)
Debt issuance costs paid		(2,305,942	)		138,998
Net cash provided by (used in) financing activities		(130,942	)		(74,012,824	)
Net increase (decrease) in cash and cash equivalents		(10,053,256	)		5,892,075
Cash and cash equivalents, beginning of period		69,433,256			56,522,148
Cash and cash equivalents, end of period	$	59,380,000		$	62,414,223
Supplemental information:
Interest paid during the period	$	1,873,404		$	2,819,446
Supplemental non-cash information:
Payment-in-kind interest income	$	235,539		$	170,029

The accompanying notes are an integral part of these consolidated financial statements.

4

PHENIXFIN CORPORATION

Consolidated Schedule of Investments

As of December 31, 2021

(Unaudited)

Company(1)	Industry	Type of Investment	Maturity	Par Amount(2)		Cost(3)		Fair Value(4)		% of Net  Assets(5)
Non-Controlled/Non-Affiliated Investments:
Altisource S.A.R.L.(11)	Services: Business	Senior Secured First Lien Term Loan B  (LIBOR + 4.00%, 1.00% LIBOR Floor)(15)	4/3/2024	$	4,197,422	$	3,778,260	$	3,851,134		2.59	%
					4,197,422		3,778,260		3,851,134		2.59	%
Be Green Packaging, LLC	Containers, Packaging & Glass	Equity - 417 Common Units			1		416,250		-		0.00	%
					1		416,250		-		0.00	%
Chimera Investment Corp.(11)	Banking, Finance, Insurance & Real Estate	Equity - 117,310 Class C Preferred Units(14)(16)			117,310		2,884,724		2,937,442		1.98	%
					117,310		2,884,724		2,937,442		1.98	%
Cleaver-Brooks, Inc.	Manufacturing	7.875% Senior Secured Notes(15)	3/1/2023		9,364,000		9,316,212		9,153,000		6.16	%
					9,364,000		9,316,212		9,153,000		6.16	%
Copper Property CTL Pass Through Trust(11)	Banking, Finance, Insurance & Real Estate	Equity Certificates(15)			212,795		4,768,931		4,787,888		3.22	%
					212,795		4,768,931		4,787,888		3.22	%
CPI International, Inc.	Aerospace & Defense	Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)	7/28/2025		2,607,062		2,600,494		2,493,003		1.68	%
					2,607,062		2,600,494		2,493,003		1.68	%
DataOnline Corp.	High Tech Industries	Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)	11/13/2025		4,900,000		4,900,000		4,900,000		3.30	%
		Revolving Credit Facility  (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)	11/13/2025		714,286		714,286		714,286		0.48	%
					5,614,286		5,614,286		5,614,286		3.78	%
DirecTV Financing, LLC	Media: Broadcasting & Subscription	Senior Secured First Lien Term Loan (LIBOR + 5.00%, 0.75% LIBOR Floor)(15)	8/2/2027		4,777,531		4,777,531		4,777,531		3.22	%
					4,777,531		4,777,531		4,777,531		3.22	%
Dividend and Income Fund(11)	Banking, Finance, Insurance & Real Estate	Equity - 97,483 Common Units(14)			97,483		1,429,545		1,419,206		0.96	%
					97,483		1,429,545		1,419,206		0.96	%
Dream Finders Homes, LLC(11)	Construction & Building	Preferred Equity  (8.00% PIK)			5,003,111		5,003,111		4,853,018		3.27	%
					5,003,111		5,003,111		4,853,018		3.27	%

5

Company(1)	Industry	Type of Investment	Maturity	Par Amount(2)		Cost(3)		Fair Value(4)		% of Net  Assets(5)
First Brands Group, LLC	Automotive	Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)	3/30/2027		3,989,950		3,989,950		3,989,950		2.69	%
					3,989,950		3,989,950		3,989,950		2.69	%
Footprint Acquisition, LLC	Services: Business	Equity - 150 Common Units			150		-		-		0.00	%
					150		-		-		0.00	%
Franklin BSP Realty Trust, Inc.(11)	Banking, Finance, Insurance & Real Estate	Equity - 555,711 Common Units(14)			488,591		8,205,708		7,299,550		4.92	%
					488,591		8,205,708		7,299,550		4.92	%
Global Accessories Group, LLC	Consumer goods: Non-durable	Equity - 3.8% Membership Interest			380		151,337		-		0.00	%
					380		151,337		-		0.00	%
Great AJAX Corp.(11)	Banking, Finance, Insurance & Real Estate	Equity - 254,922 Common Units(14)			254,922		3,333,786		3,354,774		2.26	%
					254,922		3,333,786		3,354,774		2.26	%
Innovate Corp.	Construction & Building	8.50% Senior Secured Notes(15)	2/1/2026		1,725,000		1,727,156		1,740,525		1.17	%
					1,725,000		1,727,156		1,740,525		1.17	%
Invesco Mortgage Capital, Inc.(11)	Banking, Finance, Insurance & Real Estate	Equity - 205,000 Class C Preferred Units(14)(17)			205,000		5,035,506		5,059,400		3.41	%
					205,000		5,035,506		5,059,400		3.41	%
Lighting Science Group Corporation	Containers, Packaging & Glass	Warrants - 0.62% of Outstanding Equity			5,000,000		955,680		-		0.00	%
					5,000,000		955,680		-		0.00	%
Lucky Bucks, LLC	Consumer Discretionary	Senior Secured First Lien Term Loan (LIBOR + 5.50%, 0.75% LIBOR Floor)	10/12/2027		7,500,000		7,353,740		7,387,500		4.97	%
					7,500,000		7,353,740		7,387,500		4.97	%
MFA Financial, Inc.(11)	Banking, Finance, Insurance & Real Estate	Equity - 97,426 Class C Preferred Units(14)(20)			97,426		2,318,487		2,303,151		1.55	%
					97,426		2,318,487		2,303,151		1.55	%
New Residential Investment Corp.(11)	Banking, Finance, Insurance & Real Estate	Equity - 238,134 Class B Preferred Units(14)(18)			206,684		5,129,170		5,247,707		3.53	%
					206,684		5,129,170		5,247,707		3.53	%
New York Mortgage Trust, Inc.(11)	Banking, Finance, Insurance & Real Estate	Equity -  185,000 Class E Preferred Units(14)(19)			165,000		4,102,076		4,184,400		2.82	%
					165,000		4,102,076		4,184,400		2.82	%
JFL-NGS-WCS Partners, LLC	Construction & Building	Senior Secured First Lien Term Loan B  (LIBOR + 5.50%, 1.00% LIBOR Floor)	11/12/2026		7,948,386		7,928,958		7,988,128		5.38	%
		Equity - 10,000,000 Units			10,000,000		10,000,000		10,000,000		6.73	%
					17,948,386		17,928,958		17,988,128		12.11	%
PennyMac Financial Services, Inc.(11)	Banking, Finance, Insurance & Real Estate	Equity - 76,500 Common Units(14)			76,500		5,054,628		5,338,170		3.59	%
					76,500		5,054,628		5,338,170		3.59	%
Point.360	Services: Business	Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(10)	7/8/2020		2,777,366		2,103,712		-		0.00	%
					2,777,366		2,103,712		-		0.00	%

6

Company(1)	Industry	Type of Investment	Maturity	Par Amount(2)		Cost(3)			Fair Value(4)			% of Net  Assets(5)
RateGain Technologies, Inc.	Hotel, Gaming & Leisure	Unsecured Debt(12)	10/2/2023		475,526		475,526			-			0.00	%
		Unsecured Debt(12)	4/1/2024		704,762		704,762			-			0.00	%
					1,180,288		1,180,288			-			0.00	%
Redwood Services Group, LLC(8)	Services: Business	Revolving Credit Facility  (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(13)	6/6/2024		175,000		175,000			175,000			0.12	%
					175,000		175,000			175,000			0.12	%
Secure Acquisition Inc.(8)	Packaging	Senior Secured First Lien Term Loan (LIBOR + 5.00%, 0.50% LIBOR Floor)	12/16/2028		1,741,379		1,732,672			1,732,672			1.17	%
		Senior Secured First Lien Delayed Draw Term Loan  (LIBOR + 5.00%, 0.50% LIBOR Floor)(13)	12/16/2028		-		(1,293	)		(1,293	)		0.00	%
					1,741,379		1,731,379			1,731,379			1.17	%
Sendero Drilling Company, LLC	Energy: Oil & Gas	Unsecured Debt  (9.00% Cash)(10)	8/1/2022		191,250		182,081			-			0.00	%
					191,250		182,081			-			0.00	%
Seotowncenter, Inc.	Services: Business	Equity - 3,434,169.6 Common Units			3,434,170		566,475			-			0.00	%
					3,434,170		566,475			-			0.00	%
SS Acquisition, LLC(8)	Services: Consumer	Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)	12/30/2026		6,666,667		6,566,745			6,666,667			4.49	%
		Senior Secured First Lien Delayed Draw Term Loan  (LIBOR + 6.50%, 1.00% LIBOR Floor)(13)	12/30/2026		-		-			-			0.00	%
					6,666,667		6,566,745			6,666,667			4.49	%
SMART Financial Operations, LLC	Retail	Equity - 700,000 Class A Preferred Units			700,000		700,000			-			0.00	%
					700,000		700,000			-			0.00	%
Stancor, Inc.	Services: Business	Equity - 263,814.43 Class A Units			263,814		263,814			-			0.00	%
					263,814		263,814			-			0.00	%
Thryv Holdings, Inc.(11)	Services: Business	Senior Secured First Lien Term Loan B (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(15)	3/1/2026		5,420,000		5,277,519			5,495,880			3.70	%
					5,420,000		5,277,519			5,495,880			3.70	%
Velocity Pooling Vehicle, LLC	Automotive	Equity - 5,441 Class A Units			5,441		302,465			64,167			0.04	%
		Warrants - 0.65% of Outstanding Equity	3/30/2028		6,506		361,667			76,727			0.05	%
					11,947		664,132			140,894			0.09	%
Walker Edison Furniture Company LLC	Consumer goods: Durable	Equity - 10,244 Common Units			11,734		1,843,516			2,429,360			1.64	%
					11,734		1,843,516			2,429,360			1.64	%
Watermill-QMC Midco, Inc.	Automotive	Equity - 1.3% Partnership Interest(9)			518,283		518,283			-			0.00	%
					518,283		518,283			-			0.00	%
Wingman Holdings, Inc. (f/k/a Crow Precision Components, LLC)	Aerospace & Defense	Equity - 350 Common Units			350		700,000			-			0.00	%
					350		700,000			-			0.00	%
Subtotal Non-Controlled/Non-Affiliated Investments				$	92,741,238	$	128,348,470		$	120,418,943			81.09	%

7

Company(1)	Industry	Type of Investment	Maturity	Par Amount(2)		Cost(3)		Fair Value(4)		% of Net  Assets(5)
Affiliated Investments:(6)
1888 Industrial Services, LLC(8)	Energy: Oil & Gas	Senior Secured First Lien Term Loan A  (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(10)	5/1/2023	$	9,946,741	$	9,473,068	$	-		0.00	%
		Senior Secured First Lien Term Loan C (LIBOR + 5.00%, 1.00% LIBOR Floor)	5/1/2023		1,231,932		1,191,257		-		0.00	%
		Revolving Credit Facility  (LIBOR +5.00% PIK, 1.00% LIBOR Floor)(13)	5/1/2023		3,554,069		3,554,069		3,554,069		2.39	%
		Equity - 21,562 Class A Units			21,562		-		-		0.00	%
					14,754,304		14,218,394		3,554,069		2.39	%
Black Angus Steakhouses, LLC(8)	Hotel, Gaming & Leisure	Senior Secured First Lien Delayed Draw Term Loan  (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)	6/30/2022		758,929		758,929		758,929		0.51	%
		Senior Secured First Lien Term Loan (LIBOR + 9.00% PIK, 1.00% LIBOR Floor)(10)	6/30/2022		8,412,596		7,767,533		1,749,820		1.18	%
		Senior Secured First Lien Super Priority DDTL  (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)	6/30/2022		1,500,000		1,500,000		1,500,000		1.01	%
		Equity - 17.92% Membership Interest			-		-		-		0.0	%
					10,671,525		10,026,462		4,008,749		2.70	%
Kemmerer Operations, LLC(8)	Metals & Mining	Senior Secured First Lien Term Loan (15.00% PIK)	6/21/2023		2,473,294		2,473,294		2,455,981		1.65	%
		Senior Secured First Lien Delayed Draw Term Loan  (15.00% PIK)(13)	6/21/2023		34,040		34,040		28,124		0.02	%
		Equity - 6.7797 Common Units			7		962,717		491,399		0.33	%
					2,507,341		3,470,051		2,975,504		2.00	%
Path Medical, LLC	Healthcare & Pharmaceuticals	Senior Secured First Lien Term Loan A  (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(10)	10/11/2021		5,805,894		5,805,894		2,217,851		1.49	%
		Senior Secured First Lien Term Loan B  (LIBOR + 13.00% PIK, 1.00% LIBOR Floor)(10)	10/11/2021		7,646,823		6,483,741		-		0.00	%
		Warrants - 7.68% of Outstanding Equity			123,867		499,751		-		0.00	%
					13,576,584		12,789,386		2,217,851		1.49	%
US Multifamily, LLC	Banking, Finance, Insurance & Real Estate	Senior Secured First Lien Term Loan (10.00% Cash)	12/31/2022		2,577,418		2,577,418		2,577,418		1.74	%
		Equity - 33,300 Preferred Units			33,300		3,330,000		2,236,095		1.51	%
					2,610,718		5,907,418		4,813,513		3.25	%
Subtotal Affiliated Investments				$	44,120,472	$	46,411,711	$	17,569,686		11.83	%

8

Company(1)	Industry	Type of Investment	Maturity	Par Amount(2)		Cost(3)		Fair Value(4)		% of Net  Assets(5)
Controlled Investments:(7)
FlexFIN, LLC	Services: Business	Equity Interest		$	30,500,000	$	30,500,000	$	30,500,000		20.54	%
NVTN LLC(8)	Hotel, Gaming & Leisure	Senior Secured First Lien Delayed Draw Term Loan  (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(10)(13)	12/31/2024		6,565,876		6,565,875		6,421,426		4.33	%
		Senior Secured First Lien Super Priority DDTL  (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)	12/31/2024		500,000		499,075		489,000		0.33	%
		Senior Secured First Lien Term Loan B  (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(10)	12/31/2024		14,963,195		12,305,095		-		0.00	%
		Senior Secured First Lien Term Loan C (LIBOR + 12.00% PIK, 1.00% LIBOR Floor)(10)	12/31/2024		10,014,223		7,570,054		-		0.00	%
		Equity - 787.4 Class A Units			9,550,922		9,550,922		-		0.00	%
Subtotal Control Investments				$	72,094,216	$	66,991,021	$	37,410,426		25.20	%
	Total Investments, December 31, 2021			$	208,955,926	$	241,751,202	$	175,399,055		118.12	%

9

(1)	All of our investments are domiciled in the United States. Certain investments also have international operations.
(2)	Par amount includes accumulated payment-in-kind (“PIK”) interest, as applicable, and is net of repayments.
(3)	Net unrealized depreciation for U.S. federal income tax purposes totaled $(66,082,025).
	The tax cost basis of investments is $241,481,080 as of December 31, 2021.
(4)	Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4).
(5)	Percentage is based on net assets of $148,496,991 as of December 31, 2021.
(6)	Affiliated Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% outstanding voting securities or is under common control with such portfolio company.
(7)	Control Investments are defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(8)	The investment has an unfunded commitment as of December 31, 2021 (see Note 8), and fair value includes the value of any unfunded commitments.
(9)	Represents 1.3% partnership interest in Watermill-QMC Partners, LP and Watermill-EMI Partners, LP.
(10)	The investment was on non-accrual status as of December 31, 2021.
(11)	The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of December 31, 2021, 23.65% of the Company’s portfolio investments were non-qualifying assets.
(12)	Security is non-income producing.
(13)	This investment earns 0.50% commitment fee on all unused commitment as of December 31, 2021, and is recorded as a component of interest income on the Consolidated Statements of Operations.
(14)	This investment represents a Level 1 security in the ASC 820 table as of December 31, 2021 (see Note 4).
(15)	This investment represents a Level 2 security in the ASC 820 table as of December 31, 2021 (see Note 4).
(16)	The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 4.743% spread on 9/30/2025.
(17)	The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 5.29% spread on 9/27/2027.
(18)	The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 5.64% spread on 8/15/2024.
(19)	The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 6.429% spread on 1/15/2025.
(20)	The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.345% spread on 3/31/2025.

10

PHENIXFIN CORPORATION

Consolidated Schedule of Investments

September 30, 2021

Company(1)	Industry	Type of Investment	Maturity	Par Amount(2)		Cost(3)		Fair Value(4)		% of Net Assets(5)
Non-Controlled/Non-Affiliated Investments:
Alpine SG, LLC (8)	High Tech Industries	Senior Secured First Lien Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(14)	11/16/2022	$	4,715,808	$	4,715,809	$	4,715,809		3.29	%
		Senior Secured Incremental First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)	11/16/2022		472,087		472,087		472,087		0.33	%
		Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(14)	11/16/2022		2,277,293		2,277,293		2,277,293		1.58	%
		Senior Secured Incremental First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)	11/16/2022		4,174,037		4,107,317		4,174,037		2.90	%
		Senior Secured Incremental First Lien Term Loan  (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)	11/16/2022		2,999,802		2,946,540		2,999,802		2.09	%
		Senior Secured Incremental First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)	11/16/2022		1,000,000		982,916		1,000,000		0.70	%
					15,639,027		15,501,962		15,639,028		10.89	%
Autosplice, Inc.	Automotive	Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash & 2.00% PIK, 1.00% LIBOR Floor)(14)	4/30/2022		11,826,036		11,826,036		11,826,036		8.23	%
					11,826,036		11,826,036		11,826,036		8.23	%
Be Green Packaging, LLC	Containers, Packaging & Glass	Equity - 417 Common Units			1		416,250		-		0.00	%
					1		416,250		-		0.00	%
Chimera Investment Corp.(11)	Banking, Finance, Insurance & Real Estate	Equity - 117,310 Class C Preferred Units(17)(20)			117,310		2,884,724		3,019,559		2.10	%
					117,310		2,884,724		3,019,559		2.10	%
Cleaver-Brooks, Inc.	Manufacturing	7.875% Senior Secured Notes(18)	3/1/2023		9,364,000		9,306,052		9,270,360		6.45	%
					9,364,000		9,306,052		9,270,360		6.45	%
CM Finance SPV, LLC	Energy: Oil & Gas	Unsecured Debt(10)			101,463		101,463		-		0.00	%
					101,463		101,463		-		0.00	%
CPI International, Inc.	Aerospace & Defense	Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(13)	7/28/2025		2,607,062		2,599,906		2,489,744		1.73	%
					2,607,062		2,599,906		2,489,744		1.73	%
DataOnline Corp.	High Tech Industries	Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)	11/13/2025		4,912,500		4,912,500		4,863,375		3.39	%
		Revolving Credit Facility  (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)(16)	11/13/2025		714,286		714,286		707,143		0.49	%
					5,626,786		5,626,786		5,570,518		3.88	%
Dividend and Income Fund(11)	Banking, Finance, Insurance & Real Estate	Equity - 87,483 Common Units(17)			87,483		1,281,845		1,275,502		0.89	%
					87,483		1,281,845		1,275,502		0.89	%
Dream Finders Homes, LLC(11)	Construction & Building	Preferred Equity  (8.00% PIK)			4,905,011		4,905,011		4,757,860		3.31	%
					4,905,011		4,905,011		4,757,860		3.31	%

11

Company(1)	Industry	Type of Investment	Maturity	Par Amount(2)		Cost(3)		Fair Value(4)		% of Net Assets(5)
Footprint Acquisition, LLC	Services: Business	Preferred Equity  (8.75% PIK)(10)			4,049,398		4,049,398		2,956,061		2.06	%
		Equity - 150 Common Units			150		-		-		0.00	%
					4,049,548		4,049,398		2,956,061		2.06	%
Global Accessories Group, LLC	Consumer goods: Non-durable	Equity - 3.8% Membership Interest			380		151,337		-		0.00	%
					380		151,337		-		0.00	%
Great AJAX Corp.(11)	Banking, Finance, Insurance & Real Estate	Equity - 253,651 Common Units(17)			253,651		3,316,414		3,421,752		2.38	%
					253,651		3,316,414		3,421,752		2.38	%
Invesco Mortgage Capital, Inc.(11)	Banking, Finance, Insurance & Real Estate	Equity - 205,000 Class C Preferred Units(17)(21)			205,000		5,035,506		5,217,250		3.63	%
					205,000		5,035,506		5,217,250		3.63	%
Lighting Science Group Corporation	Containers, Packaging & Glass	Warrants - 0.62% of Outstanding Equity(18)			5,000,000		955,680		-		0.00	%
					5,000,000		955,680		-		0.00	%
MFA Financial, Inc.	Banking, Finance, Insurance & Real Estate	Equity - 31,692 Class C Preferred Units(17)(24)			31,692		762,171		778,989		0.54	%
					31,692		762,171		778,989		0.54	%
New Residential Investment Corp.(11)	Banking, Finance, Insurance & Real Estate	Equity - 206,684 Class B Preferred Units(17)(22)			206,684		5,129,170		5,206,370		3.62	%
					206,684		5,129,170		5,206,370		3.62	%
New York Mortgage Trust, Inc.(11)	Banking, Finance, Insurance & Real Estate	Equity -  165,000 Class E Preferred Units(17)(23)			165,000		4,102,076		4,182,750		2.91	%
					165,000		4,102,076		4,182,750		2.91	%
Point.360	Services: Business	Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(10)(15)	7/8/2020		2,777,366		2,103,712		-		0.00	%
					2,777,366		2,103,712		-		0.00	%
RateGain Technologies, Inc.	Hotel, Gaming & Leisure	Unsecured Debt (4.50% Cash)(12)	10/2/2023		532,671		532,671		-		0.00	%
		Unsecured Debt (4.50% Cash)(12)	4/1/2024		704,762		704,762		-		0.00	%
					1,237,433		1,237,433		-		0.00	%
Redwood Services Group, LLC(8)	Services: Business	Revolving Credit Facility  (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(13)(16)	6/6/2023		175,000		175,000		175,000		0.12	%
					175,000		175,000		175,000		0.12	%
Sendero Drilling Company, LLC	Energy: Oil & Gas	Unsecured Debt  (9.00% Cash)(10)	8/1/2022		233,750		222,544		-		0.00	%
					233,750		222,544		-		0.00	%
Seotowncenter, Inc.	Services: Business	Equity - 3,434,169.6 Common Units			3,434,170		566,475		-		0.00	%
					3,434,170		566,475		-		0.00	%

12

Company(1)	Industry	Type of Investment	Maturity	Par Amount(2)		Cost(3)		Fair Value(4)		% of Net Assets(5)
SMART Financial Operations, LLC	Retail	Equity - 700,000 Class A Preferred Units			700,000		700,000		-		0.00	%
					700,000		700,000		-		0.00	%
Stancor, Inc.	Services: Business	Equity - 263,814.43 Class A Units			263,814		263,814		-		0.00	%
					263,814		263,814		-		0.00	%
Thryv Holdings, Inc.(11)	Services: Business	Senior Secured First Lien Term Loan B (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13)	3/1/2026		5,770,000		5,610,988		5,863,763		4.08	%
					5,770,000		5,610,988		5,863,763		4.08	%
Velocity Pooling Vehicle, LLC	Automotive	Equity - 5,441 Class A Units			5,441		302,464		64,167		0.05	%
		Warrants - 0.65% of Outstanding Equity	3/30/2028		6,506		361,667		76,727		0.05	%
					11,947		664,131		140,894		0.10	%
Walker Edison Furniture Company LLC	Consumer goods: Durable	Equity - 10,244 Common Units			10,244		1,500,000		2,361,242		1.64	%
					10,244		1,500,000		2,361,242		1.64	%
Watermill-QMC Midco, Inc.	Automotive	Equity - 1.3% Partnership Interest(9)			518,283		518,283		-		0.00	%
					518,283		518,283		-		0.00	%
Wingman Holdings, Inc. (f/k/a Crow Precision Components, LLC)	Aerospace & Defense	Equity - 350 Common Units			350		700,000		-		0.00	%
					350		700,000		-		0.00	%
Subtotal Non-Controlled/Non-Affiliated Investments				$	75,318,491	$	92,214,167	$	84,152,678		58.56	%
Affiliated Investments:(6)
1888 Industrial Services, LLC(8)	Energy: Oil & Gas	Senior Secured First Lien Term Loan A  (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(10)(14)	9/30/2021(25)	$	9,946,741	$	9,473,066	$	-		0.00	%
		Senior Secured First Lien Term Loan B (LIBOR + 8.00% PIK, 1.00% LIBOR Floor)(10)(14)	9/30/2021(25)		25,937,520		19,468,870		-		0.00	%
		Senior Secured First Lien Term Loan C (LIBOR + 5.00%, 1.00% LIBOR Floor)(14)	9/30/2021(25)		1,231,932		1,191,257		24,637		0.02	%
		Revolving Credit Facility  (LIBOR +5.00% PIK, 1.00% LIBOR Floor)(14)(16)	9/30/2021(25)		3,554,069		3,554,069		3,554,069		2.47	%
		Equity - 17,493.63 Class A Units			-		-		-		0.00	%
					40,670,262		33,687,262		3,578,706		2.49	%
Black Angus Steakhouses, LLC(8)	Hotel, Gaming & Leisure	Senior Secured First Lien Delayed Draw Term Loan  (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)	6/30/2022		758,929		758,929		758,929		0.53	%
		Senior Secured First Lien Term Loan (LIBOR + 9.00% PIK, 1.00% LIBOR Floor)(10)(13)	6/30/2022		8,412,596		7,767,533		2,279,814		1.59	%
		Senior Secured First Lien Super Priority DDTL  (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)(16)	6/30/2022		1,500,000		1,500,000		1,500,000		1.04	%
					10,671,525		10,026,462		4,538,743		3.16	%
Caddo Investors Holdings 1 LLC(11)	Forest Products & Paper	Equity - 6.15% Membership Interest(19)			2,528,826		2,528,826		3,454,786		2.40	%
					2,528,826		2,528,826		3,454,786		2.40	%

13

Company(1)	Industry	Type of Investment	Maturity	Par Amount(2)		Cost(3)		Fair Value(4)		% of Net Assets(5)
Dynamic Energy Services International LLC	Energy: Oil & Gas	Senior Secured First Lien Term Loan (LIBOR + 13.50% PIK)(10)(15)	12/31/2021		12,109,957		7,328,568		-		0.00	%
		Equity - 12,350,000 Class A Units			12,350,000		-		-		0.00	%
					24,459,957		7,328,568		-		0.00	%
JFL-NGS Partners, LLC	Construction & Building	Equity - 57,300 Class B Units			57,300		57,300		26,862,813		18.69	%
					57,300		57,300		26,862,813		18.69	%
JFL-WCS Partners, LLC	Environmental Industries	Equity - 129,588 Class B Units			129,588		129,588		8,099,949		5.64	%
					129,588		129,588		8,099,949		5.64	%
Kemmerer Operations, LLC(8)	Metals & Mining	Senior Secured First Lien Term Loan (15.00% PIK)	6/21/2023		2,381,985		2,381,985		2,360,547		1.64	%
		Senior Secured First Lien Delayed Draw Term Loan  (15.00% PIK)(16)	6/21/2023		163,915		163,915		162,441		0.11	%
		Equity - 6.7797 Common Units			7		962,717		553,746		0.39	%
					2,545,907		3,508,617		3,076,734		2.14	%
Path Medical, LLC	Healthcare & Pharmaceuticals	Senior Secured First Lien Term Loan A  (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(10)(13)	10/11/2021		5,805,894		5,805,894		2,249,835		1.57	%
		Senior Secured First Lien Term Loan B  (LIBOR + 13.00% PIK, 1.00% LIBOR Floor)(10)(13)	10/11/2021		7,646,823		6,483,741		-		0.00	%
		Warrants - 7.68% of Outstanding Equity			123,867		499,751		-		0.00	%
					13,576,584		12,789,386		2,249,835		1.57	%
URT Acquisition Holdings Corporation	Services: Business	Warrants			28,912		-		920,000		0.64	%
					28,912		-		920,000		0.64	%
US Multifamily, LLC (11)	Banking, Finance, Insurance & Real Estate	Senior Secured First Lien Term Loan (10.00% Cash)	12/31/2022		2,577,418		2,577,418		2,577,418		1.79	%
		Equity - 33,300 Preferred Units			33,300		3,330,000		2,236,261		1.56	%
					2,610,718		5,907,418		4,813,679		3.35	%
Subtotal Affiliated Investments				$	97,279,579	$	75,963,427	$	57,595,245		40.08	%

14

Company(1)	Industry	Type of Investment	Maturity	Par Amount(2)		Cost(3)		Fair Value(4)		% of Net Assets(5)
Controlled Investments:(7)
FlexFIN, LLC	Services: Business	Equity Interest		$	2,500,000	$	2,500,000	$	2,500,000		1.74	%
					2,500,000		2,500,000		2,500,000		1.74	%
NVTN LLC(8)	Hotel, Gaming & Leisure	Senior Secured First Lien Delayed Draw Term Loan  (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(10)(13)(16)	12/31/2024		6,565,875		6,565,875		6,414,860		4.47	%
		Senior Secured First Lien Super Priority DDTL  (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(13)(16)	12/31/2024		1,000,000		998,150		977,000		0.68	%
		Senior Secured First Lien Term Loan B  (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(10)(13)	12/31/2024		14,963,195		12,305,096		-		0.00	%
		Senior Secured First Lien Term Loan C (LIBOR + 12.00% PIK, 1.00% LIBOR Floor)(10)(13)	12/31/2024		10,014,223		7,570,054		-		0.00	%
		Equity - 787.4 Class A Units			9,550,922		9,550,922		-		0.00	%
					42,094,215		36,990,097		7,391,860		5.15	%
Subtotal Control Investments				$	44,594,215	$	39,490,097	$	9,891,860		6.89	%
	Total Investments, September 30, 2021			$	217,192,285	$	207,667,691	$	151,639,783		105.53	%

The accompanying notes are an integral part of these consolidated financial statements.

15

(1) All of our investments are domiciled in the United States. Certain investments also have international operations.

(2)	Par amount includes accumulated payment-in-kind (“PIK”) interest, as applicable, and is net of repayments.
(3)	Net unrealized depreciation for U.S. federal income tax purposes totaled $55,318,330.
	The tax cost basis of investments is $206,958,113 as of September 30, 2021.
(4)	Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4).
(5)	Percentage is based on net assets of $143,693,981 as of September 30, 2021.
(6)	Affiliated Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% outstanding voting securities or is under common control with such portfolio company.
(7)	Control Investments are defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(8)	The investment has an unfunded commitment as of September 30, 2021 (see Note 8), and fair value includes the value of any unfunded commitments.
(9)	Represents 1.3% partnership interest in Watermill-QMC Partners, LP and Watermill-EMI Partners, LP.
(10)	The investment was on non-accrual status as of September 30, 2021.
(11)	The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of September 30, 2021, 20.18% of the Company’s portfolio investments were non-qualifying assets.
(12)	Security is non-income producing.
(13)	The interest rate on these loans is subject to the greater of a London Interbank Offering Rate (“LIBOR”) floor, or 1 month LIBOR plus a base rate. The 1 month LIBOR as of September 30, 2021 was 0.08%.
(14)	The interest rate on these loans is subject to the greater of a LIBOR floor, or 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2021 was 0.13 %.
(15)	The interest rate on these loans is subject to 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2021 was 0.13 %.
(16)	This investment earns 0.50% commitment fee on all unused commitment as of September 30, 2021, and is recorded as a component of interest income on the Consolidated Statements of Operations.
(17)	This investment represents a Level 1 security in the ASC 820 table as of September 30, 2021 (see Note 4).
(18)	This investment represents a Level 2 security in the ASC 820 table as of September 30, 2021 (see Note 4).
(19)	As a practical expedient, the Company uses net asset value (“NAV”) to determine the fair value of this investment.
(20)	The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 4.743% spread on 9/30/2025.
(21)	The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.29% spread on 9/27/2027.
(22)	The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.64% spread on 8/15/2024.
(23)	The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 6.429% spread on 1/15/2025.
(24)	The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.345% spread on 3/31/2025.
(25)	The maturity date was extended to May 1, 2023 subsequent to September 30, 2021.

16

PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements

December 31, 2021

(Unaudited)

Note 1. Organization

PhenixFIN Corporation (“PhenixFIN.” the “Company,” “we” and “us”) is an internally-managed non-diversified closed end management investment company incorporated in Delaware that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company has elected, and intends to qualify annually, to be treated, for U.S. federal income tax purposes, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). On November 18, 2020, the board of directors of the Company approved the adoption of an internalized management structure, effective January 1, 2021. Until close of business on December 31, 2020 we were externally managed and advised by MCC Advisors LLC (“MCC Advisors”), pursuant to an investment management agreement. MCC Advisors is a wholly owned subsidiary of Medley LLC, which is controlled by Medley Management Inc. (NYSE: MDLY), a publicly traded asset management firm (“MDLY”), which in turn is controlled by Medley Group LLC, an entity wholly owned by the senior professionals of Medley LLC. We use the term “Medley” to refer collectively to the activities and operations of Medley Capital LLC, Medley LLC, MDLY, Medley Group LLC, MCC Advisors, associated investment funds and their respective affiliates. Since January 1, 2021 the Company has been managed pursuant to an internalized management structure.

On March 26, 2013, our wholly owned subsidiary, Medley SBIC, LP (“SBIC LP”), a Delaware limited partnership that we own directly and through our wholly owned subsidiary, Medley SBIC GP, LLC, received a license from the 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. Effective July 1, 2019, SBIC LP surrendered its SBIC license and changed its name to Medley Small Business Fund, LP. In addition, Medley SBIC GP, LLC changed its name to Medley Small Business Fund GP, LLC. Medley Small Business Fund, LP and Medley Small Business Fund GP, LLC have since changed their names to PhenixFIN Small Business Fund, LP and PhenixFIN Small Business Fund GP, LLC, respectively.

The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow us to, among other things, hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.

The Company’s investment objective is to generate current income and capital appreciation. The management team seeks to achieve this objective primarily through making loans, private equity or other investments in privately-held companies. The Company may also make debt, equity or other investments in publicly-traded companies. (These investments may also include investments in other BDCs, closed-end funds or REITs.) We may also pursue other strategic opportunities and invest in other assets or operate other businesses to achieve our investment objective, such as operating and managing an asset-based lending business. The portfolio generally consists of senior secured first lien term loans, senior secured second lien term loans, senior secured bonds, preferred equity and common equity. Occasionally, we will receive warrants or other equity participation features which we believe will have the potential to increase total investment returns. Our loan and other debt investments are primarily rated below investment grade or are unrated. Investments in below investment grade securities are considered predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due.

Reverse Stock Split; Authorized Share Reduction

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

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

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

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

17

PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

December 31, 2021

(Unaudited)

Sale of MCC JV

On October 8, 2020, the Company, Great American Life Insurance Company (“GALIC”), MCC Senior Loan Strategy JV I LLC (the “MCC JV”), and an affiliate of Golub Capital LLC (“Golub”) entered into a Membership Interest Purchase Agreement pursuant to which a fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in the MCC JV and all of GALIC’s interest in the MCC JV for a pre-adjusted gross purchase price of $156.4 million and an adjusted gross purchase price (which constitutes the aggregate consideration for the membership interests) of $145.3 million (giving effect to adjustments primarily for principal and interest payments from portfolio companies of MCC JV from July 1, 2020 through October 7, 2020), resulting in net proceeds (before transaction expenses) of $41.0 million and $6.6 million for the Company and GALIC, respectively.

COVID-19 Developments

The COVID-19 pandemic and variants thereof continue to have adverse consequences on the U.S. and global economies, as well as on the Company (including certain portfolio companies) in particular. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual portfolio companies, remains uncertain. The Company’s performance (including that of certain of its portfolio companies) has been negatively impacted during the pandemic. The longer-term impact of COVID-19 on the operations and the performance of the Company (including certain portfolio companies) is difficult to predict, but may continue to be adverse. The longer-term potential impact on such operations and performance could depend to a large extent on future developments and actions taken by authorities and other entities to mitigate COVID-19 (and any variants thereof) and its economic impact. The impacts, as well as the uncertainty over impacts to come, of COVID-19 (including any variants thereof) have adversely affected the performance of the Company (including certain portfolio companies) and may continue to do so in the future. Further, the potential exists for additional variants of COVID-19, including the Omicron variant, to impede the global economic recovery and exacerbate geographic differences in the spread of, and response to, COVID-19.

Note 2. Significant Accounting Policies

Basis of Presentation

The Company is an investment company following the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 946 (“ASC 946”), Financial Services – Investment Companies. The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the consolidated accounts of the Company and its wholly owned subsidiaries PhenixFIN Small Business Fund, LP (“PhenixFIN Small Business Fund”) and PhenixFIN SLF Funding I LLC (“PhenixFIN SLF”), and its wholly owned Taxable Subsidiaries. All references made to the “Company,” “we,” and “us” herein include PhenixFIN Corporation and its consolidated subsidiaries, except as stated otherwise. Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-K and Article 10 of Regulation S-X of the Securities Act of 1933. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications, which are of a normal recurring nature, that are necessary for the fair presentation of financial results as of and for the periods presented. Therefore, this Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended September 30, 2021. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending September 30, 2022.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents  

The Company considers cash equivalents to be highly liquid investments with original maturities of three months or less. Cash and cash equivalents include deposits in a money market account. The Company deposits its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. As of December 31, 2021 and September 30, 2021, we had $59.4 million and $69.4 million in cash and cash equivalents, respectively.

Debt Issuance Costs

Debt issuance costs, incurred in connection with any credit facilities and unsecured notes (see Note 5) are deferred and amortized over the life of the respective credit facility or instrument.

Indemnification

In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no material claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.

18

PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

December 31, 2021

(Unaudited)

Revenue Recognition

Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Dividend income, which represents dividends from equity investments and distributions from Taxable Subsidiaries, is recorded on the ex-dividend date and when the distribution is received, respectively.

The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. For the three months ended December 31, 2021, the Company earned approximately $0.2 million in PIK interest. For the three months ended December 31, 2020, the Company earned approximately $0.2 million in PIK interest.

Origination/closing, amendment and transaction break-up fees associated with investments in portfolio companies are recognized as income when we become entitled to such fees. Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon repayment of debt. Administrative agent fees received by the Company are capitalized as deferred revenue and recorded as fee income when the services are rendered. For the three months ended December 31, 2021 and 2020, fee income was approximately $0.3 million and $0.3 million, respectively (see Note 9).

Investment transactions are accounted for on a trade date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. During the three months ended December 31, 2021 and 2020, $(19.6) million and $0.0 million, respectively, of the Company’s realized gains (losses) were related to certain non-cash restructuring transactions, which are recorded on the Consolidated Statements of Operations as a component of net realized gains/losses from investments. The Company reports changes in fair value of investments as a component of the net unrealized appreciation/(depreciation) on investments in the Consolidated Statements of Operations.

Management reviews all loans that become 90 days or more past due on principal or interest or when there is reasonable doubt that principal or interest will be collected for possible placement on management’s designation of non-accrual status. Interest receivable is analyzed regularly and may be reserved against when deemed not collectible. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At December 31, 2021, certain investments in six portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $10.4 million, or 5.9% of the fair value of our portfolio. At September 30, 2021, certain investments in nine portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $13.9 million, or 9.2% of the fair value of our portfolio.

Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, we would be deemed to “control” a portfolio company if we owned more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. We refer to such investments in portfolio companies that we “control” as “Control Investments.” Under the 1940 Act, we would be deemed to be an “Affiliated Person” of a portfolio company if we own between 5% and 25% of the portfolio company’s outstanding voting securities or we are under common control with such portfolio company. We refer to such investments in Affiliated Persons as “Affiliated Investments.”

Valuation of Investments

The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 4. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotations, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the Company’s board of directors based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.

19

PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

December 31, 2021

(Unaudited)

Investments in investment funds are valued at fair value. Fair values are generally determined utilizing the NAV supplied by, or on behalf of, management of each investment fund, which is net of management and incentive fees or allocations charged by the investment fund and is in accordance with the “practical expedient”, as defined by FASB Accounting Standards Update (“ASU”) 2009-12, Investments in Certain Entities that Calculate Net Asset Value per Share. NAVs received by, or on behalf of, management of each investment fund are based on the fair value of the investment funds’ underlying investments in accordance with policies established by management of each investment fund, as described in each of their financial statements and offering memorandum. If the Company is in the process of the sale of an investment fund, fair value will be determined by actual or estimated sale proceeds.

The methodologies utilized by the Company in estimating the fair value of its investments categorized as Level 3 generally fall into the following two categories:

● The “Market Approach” uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business.

● The “Income Approach” converts future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount. When the Income Approach is used, the fair value measurement reflects current market expectations about those future amounts.

The Company has engaged third-party valuation firms (the “Valuation Firms”) to assist it and its board of directors in the valuation of its portfolio investments. The valuation reports generated by the Valuation Firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. The Company uses a market yield analysis under the Income Approach or an enterprise model of valuation under the Market Approach, or a combination thereof. In applying the market yield analysis, the value of the Company’s loans is determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis, which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value.

The methodologies and information that the Company utilizes when applying the Market Approach for performing investments include, among other things:

● valuations of comparable public companies (“Guideline Comparable Approach”);

● recent sales of private and public comparable companies (“Guideline Comparable Approach”);

● recent acquisition prices of the company, debt securities or equity securities (“Recent Arms-Length Transaction”);

● external valuations of the portfolio company, offers from third parties to buy the company (“Estimated Sales Proceeds Approach”);

● subsequent sales made by the company of its investments (“Expected Sales Proceeds Approach”); and

● estimating the value to potential buyers.

The methodologies and information that the Company utilizes when applying the Income Approach for performing investments include:

● discounting the forecasted cash flows of the portfolio company or securities (Discounted Cash Flow (“DCF”) Approach); and

● Black-Scholes model or simulation models or a combination thereof (Income Approach - Option Model) with respect to the valuation of warrants.

For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model (Market Approach - Expected Recovery Analysis or Estimated Liquidation Proceeds).

We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

● our quarterly valuation process begins with each portfolio investment being initially valued by one or more Valuation Firms;

● preliminary valuation conclusions are then documented and discussed with senior management;

● the audit committee of the board of directors reviews the preliminary valuations with management and the Valuation Firms; and

● the board of directors discusses the valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of management, the respective Valuation Firms and the audit committee.

20

PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

December 31, 2021

(Unaudited)

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 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 addition, changes in the market environment (including the impact of COVID-19 on financial markets), portfolio company performance, and other events may occur over the lives of the investments that may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned.

Fair Value of Financial Instruments

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of our long-term obligations are discussed in Note 5.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848)—Facilitation of the effects of reference rate reform on financial reporting.” The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to certain contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform and became effective upon issuance for all entities. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and also 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. In January 2021, the FASB issued ASU 2021-01, “Reference rate reform (Topic 848),” which expanded the scope of Topic 848. ASU 2020-04 and ASU 2021-01 are effective through December 31, 2022 when the Company plans to apply the amendments in this update to account for contract modifications due to changes in reference rates. The Company does not believe the adoption of ASU 2020-04 and ASU 2021-01 will have a material impact on its consolidated financial statements and disclosures.

In May 2020, the SEC adopted rule amendments that impacted the requirement of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The Final Rules adopt a new definition of “significant subsidiary” applicable only to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an investment company. The Final Rules became effective on January 1, 2021. The Company evaluated the impact of the Final Rules and determined its impact not to be material and began voluntary compliance with the Final Rules since the quarter ended June 30, 2020.

Federal Income Taxes

The Company has elected, and intends to qualify annually, to be treated as a RIC under Subchapter M of the Code. In order to continue to qualify as a RIC and be eligible for tax treatment under Subchapter M of the Code, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”), as defined by the Code, including PIK interest, and net tax exempt interest income (which is the excess of gross tax exempt interest income over certain disallowed deductions) for each taxable year. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.

The Company is subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year and any income realized, but not distributed, in preceding years and on which it did not pay federal income tax. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. There was no provision for federal excise tax at December 31, 2021 and December 31, 2020.

The Company’s Taxable Subsidiaries accrue income taxes payable based on the applicable corporate rates on the unrealized gains generated by the investments held by the Taxable Subsidiaries. As of December 31, 2021 and September 30, 2021, the Company did not record a deferred tax liability on the Consolidated Statements of Assets and Liabilities. The change in provision for deferred taxes is included as a component of net realized and unrealized gain/(loss) on investments in the Consolidated Statements of Operations. For the three months ended December 31, 2021 and 2020, the Company did not record a change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments.

As of December 31, 2021 and September 30, 2021, the Company has a net deferred tax asset of $23.9 million and $22.2 million, respectively, consisting primarily of net operating losses offset by net unrealized gains on the investments held within its Taxable Subsidiaries. As of December 31, 2021 and September 30, 2021, the Company booked a valuation allowance of $23.9 million and $22.2 million, respectively, against its net deferred tax asset.

21

PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

December 31, 2021

(Unaudited)

ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. The Company may be required to recognize ICTI in certain circumstances in which it does not receive cash. For example, if the Company holds debt obligations that are treated under applicable tax rules as having original issue discount, the Company must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by the Company in the same taxable year. The Company may also have to include in ICTI other amounts that it has not yet received in cash, such as 1) PIK interest income and 2) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in the Company’s ICTI for the year of accrual, the Company may be required to make a distribution to its stockholders in order to satisfy the minimum distribution requirements, even though the Company will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.

The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (“ASC 740”). ASC 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s 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 current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations. There were no material uncertain income tax positions at December 31, 2021. Although we file federal and state tax returns, our major tax jurisdiction is federal. The Company’s federal and state tax returns for the prior three fiscal years remain open, subject to examination by the Internal Revenue Service and applicable state tax authorities.

Segments

The Company invests in various industries. The Company separately evaluates the performance of each of its investment relationships. However, because each of these investment relationships has similar business and economic characteristics, they have been aggregated into a single investment segment. All applicable segment disclosures are included in or can be derived from the Company’s financial statements. See Note 3 for further information.

Company Investment Risk, Concentration of Credit Risk, and Liquidity Risk

The Company has broad discretion in making investments. Investments generally consist of debt instruments that may be affected by business, financial market or legal uncertainties. Prices of investments may be volatile, and a variety of factors that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly affect the results of the Company’s activities and the value of its investments. In addition, the value of the Company’s portfolio may fluctuate as the general level of interest rates fluctuate.

22

PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

December 31, 2021

(Unaudited)

The value of the Company’s investments in loans may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as our borrowers, and those for which market yields are observable increase materially.

The Company’s assets may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately.

Company performance (including that of certain of its portfolio companies) has been and may continue to be negatively impacted by the COVID-19 pandemic’s effects. The COVID-19 pandemic has adversely impacted economies and capital markets around the world in ways that may continue and may change in unforeseen ways for an indeterminate period. The pandemic has also adversely affected various businesses, including some in which we are invested. The COVID-19 pandemic may exacerbate pre-existing business performance, political, social and economic risks affecting certain companies and countries generally. The impacts, as well as the uncertainty over impacts to come, of COVID-19 (including the Delta variant) have adversely affected the performance of the Company (including certain portfolio companies) and may continue to do so in the future. Further, the potential exists for additional variants of COVID-19, including the Omicron variant, to impede the global economic recovery and exacerbate geographic differences in the spread of, and response to, COVID-19.

Note 3. Investments

The composition of our investments as of December 31, 2021 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands):

	Amortized Cost		Percentage			Fair Value		Percentage
Senior Secured First Lien Term Loans	$	117,857		48.7	%	$	69,431		39.6	%
Senior Secured Second Lien Term Loans		2,600		1.1			2,493		1.4
Senior Secured Notes		11,043		4.6			10,892		6.2
Unsecured Debt		1,362		0.6			-		-
Equity/Warrants		108,889		45.0			92,583		52.8
Total Investments	$	241,751		100.0	%	$	175,399		100.0	%

23

PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

December 31, 2021

(Unaudited)

The composition of our investments as of September 30, 2021 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands):

	Amortized Cost		Percentage			Fair Value		Percentage
Senior Secured First Lien Term Loans	$	136,740		65.7	%	$	61,934		40.9	%
Senior Secured Second Lien Term Loans		2,600		1.3			2,490		1.6
Senior Secured Notes		9,306		4.5			9,270		6.1
Secured Debt		2,500		1.2			2,500		1.6
Unsecured Debt		1,561		0.8			-		-
Equity/Warrants		54,961		26.5			75,446		49.8
Total Investments	$	207,668		100.0	%	$	151,640		100.0	%

In connection with certain of the Company’s investments, the Company receives warrants that are obtained for the objective of increasing the total investment returns and are not held for hedging purposes. At December 31, 2021 and September 30, 2021, the total fair value of warrants was $76.7 thousand and $996.7 thousand, respectively, and were included in investments at fair value on the Consolidated Statements of Assets and Liabilities. During the three months ended December 31, 2021, the Company did not acquire any warrants. During the three months ended December 31, 2020, the Company acquired warrants in one existing portfolio company.

For the three months ended December 31, 2021, there was no unrealized appreciation/(depreciation) related to warrants. For the three months ended December 31, 2020, there was $10,069 of unrealized appreciation related to warrants. The warrants are received in connection with individual investments and are not subject to master netting arrangements.

The following table shows the portfolio composition by industry grouping at fair value at December 31, 2021 (dollars in thousands):

	Fair Value		Percentage
Banking, Finance, Insurance & Real Estate	$	46,744		26.7	%
Services: Business		40,022		22.8
Construction & Building		24,582		14.0
Hotel, Gaming & Leisure		10,919		6.2
Manufacturing		9,153		5.2
Consumer Discretionary		7,388		4.2
Services: Consumer		6,667		3.8
High Tech Industries		5,614		3.2
Media: Broadcasting & Subscription		4,778		2.7
Automotive		4,131		2.4
Energy: Oil & Gas		3,554		2.0
Metals & Mining		2,976		1.7
Aerospace & Defense		2,493		1.4
Consumer goods: Durable		2,429		1.4
Healthcare & Pharmaceuticals		2,218		1.3
Packaging		1,731		1.0
Total	$	175,399		100.0	%

24

PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

December 31, 2021

(Unaudited)

The following table shows the portfolio composition by industry grouping at fair value at September 30, 2021 (dollars in thousands):

	Fair Value		Percentage
Construction & Building	$	31,619		20.8	%
Banking, Finance, Insurance & Real Estate		27,916		18.4
High Tech Industries		21,210		14.0
Services: Business		12,415		8.2
Automotive		11,967		7.9
Hotel, Gaming & Leisure		11,931		7.9
Manufacturing		9,270		6.1
Environmental Industries		8,100		5.3
Energy: Oil & Gas		3,579		2.4
Forest Products & Paper		3,455		2.3
Metals & Mining		3,077		2.0
Aerospace & Defense		2,490		1.6
Consumer goods: Durable		2,361		1.6
Healthcare & Pharmaceuticals		2,250		1.5
Total	$	151,640		100.0	%

The Company invests in portfolio companies principally located in North America. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.

The following table shows the portfolio composition by geographic location at fair value at December 31, 2021 (dollars in thousands):

	Fair Value		Percentage
Northeast	$	90,715		51.7	%
Southeast		42,100		24.0
West		26,131		14.9
Midwest		7,106		4.1
Southwest		5,496		3.1
Other(1)		3,851		2.2
Total	$	175,399		100.0	%

(1) As of December 31, 2021, comprised of our investments in foreign investments.

The following table shows the portfolio composition by geographic location at fair value at September 30, 2021 (dollars in thousands):

	Fair Value		Percentage
Northeast	$	54,211		35.8	%
West		44,030		29.0
Southeast		28,887		19.0
Southwest		17,418		11.5
Midwest		7,094		4.7
Total	$	151,640		100.0	%

25

PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

December 31, 2021

(Unaudited)

Transactions With Affiliated/Controlled Companies

The Company had investments in portfolio companies designated as Affiliated Investments and Controlled Investments under the 1940 Act. Transactions with Affiliated Investments and Controlled Investments during the three months ended December 31, 2021 and 2020 were as follows:

Name of Investment⁽³⁾⁽⁴⁾ Type of Investment Fair Value at
September 30,
2021 Purchases/(Sales) of or
Advances/(Distributions) Transfers In/(Out)
of Affiliates Unrealized
Gain/
(Loss) Realized
Gain/
(Loss) Fair Value at
December 31,
2021 Earned Income