10-Q 1 tv499557_10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2018

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)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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

(do not check if a smaller reporting 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 x

The number of shares of the issuer’s Common Stock, $0.001 par value per share, outstanding as of August 6, 2018 was 15,953,810.

STELLUS CAPITAL INVESTMENT CORPORATION

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Statements of Assets and Liabilities as of June 30, 2018 (unaudited) and December 31, 2017	1
	Consolidated Statements of Operations for the three and six-month periods ended June 30, 2018 and 2017 (unaudited)	2
	Consolidated Statements of Changes in Net Assets for the six-month periods ended June 30, 2018 and 2017 (unaudited)	3
	Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2018 and 2017 (unaudited)	4
	Consolidated Schedules of Investments as of June 30, 2018 (unaudited) and December 31, 2017	5
	Notes to Unaudited Consolidated Financial Statements	19
	Consolidated Schedule of Investments in and Advances to Affiliates	49
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 4.	Controls and Procedures	65
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3.	Defaults Upon Senior Securities	68
Item 4.	Mine Safety Disclosures	68
Item 5.	Other Information	68
Item 6.	Exhibits	69

PART I — FINANCIAL INFORMATION

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

	June 30,
	2018			December 31,
	(Unaudited)			2017
ASSETS
Non-controlled, affiliated investments, at fair value (amortized cost of $135,518 and $1,052,185, respectively)	$	140,000		$	990,000
Non-controlled, non-affiliated investments, at fair value (amortized cost of $492,872,019 and $367,401,021, respectively)		499,596,626			370,849,772
Cash and cash equivalents		20,940,365			25,110,718
Receivable for sales and repayments of investments		27,400			26,891
Interest receivable		3,802,649			2,922,204
Other receivables		37,647			—
Prepaid expenses		215,752			361,270
Total Assets	$	524,760,439		$	400,260,855
LIABILITIES
Notes payable	$	47,473,804		$	47,306,488
Credit facility payable		118,052,814			39,332,479
SBA-guaranteed debentures		126,529,418			87,818,813
Dividends payable		1,807,570			1,806,671
Management fees payable		1,549,023			1,621,592
Income incentive fees payable		1,525,320			371,647
Capital gains incentive fees payable		522,019			—
Interest payable		1,542,832			1,021,173
Unearned revenue		212,110			139,304
Administrative services payable		327,575			327,033
Deferred tax liability		9,194			—
Other accrued expenses and liabilities		765,305			268,413
Total Liabilities	$	300,316,984		$	180,013,613
Commitments and contingencies (Note 7)
Net Assets	$	224,443,455		$	220,247,242
NET ASSETS
Common Stock, par value $0.001 per share (200,000,000 shares and 100,000,000 shares authorized; 15,953,810 and 15,945,879 issued and outstanding, respectively)	$	15,954		$	15,946
Paid-in capital		228,160,974			228,066,762
Accumulated net realized loss from non-controlled, non-affiliated investments, net of cumulative dividends of $4,246,819 for both periods		(8,375,007	)		(10,786,240	)
Distributions in excess of net investment income		(2,078,361	)		(435,794	)
Net Unrealized appreciation on non-controlled, non-affiliated investments and cash equivalents, net of provision for taxes of $9,194 and $0, respectively		6,715,413			3,448,753
Net Unrealized appreciation (depreciation) on non-controlled, affiliated investments		4,482			(62,185	)
Net Assets	$	224,443,455		$	220,247,242
Total Liabilities and Net Assets	$	524,760,439		$	400,260,855
Net Asset Value Per Share	$	14.07		$	13.81

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	For the			For the		For the			For the
	three			three		six			six
	months ended			months ended		months ended			months ended
	June 30,			June 30,		June 30,			June 30,
	2018			2017		2018			2017
INVESTMENT INCOME
Interest income	$	12,214,766		$	9,642,531	$	22,945,514		$	19,118,783
Other income		404,891			751,834		585,924			1,139,562
Total Investment Income	$	12,619,657		$	10,394,365	$	23,531,438		$	20,258,345
OPERATING EXPENSES
Management fees	$	2,049,023		$	1,523,010	$	3,797,919		$	3,087,538
Valuation fees		20,307			23,305		154,717			189,394
Administrative services expenses		308,163			310,860		659,392			619,958
Income incentive fees		1,312,314			1,234,616		2,281,140			2,255,843
Capital gains incentive fees		522,019			—		522,019			—
Professional fees		224,121			219,487		693,259			447,164
Directors' fees		79,000			79,000		171,000			171,000
Insurance expense		86,649			110,466		172,346			219,718
Interest expense and other fees		3,012,644			1,780,809		5,477,624			3,849,439
Other general and administrative expenses		278,181			174,353		399,407			336,205
Total Operating Expenses	$	7,892,421		$	5,455,906	$	14,328,823		$	11,176,259
Net Investment Income	$	4,727,236		$	4,938,459	$	9,202,615		$	9,082,086
Net Realized Gain (Loss) on Non-Controlled, Non-Affiliated Investments and Cash Equivalents	$	1,075,964		$	54	$	2,411,233		$	(711,997	)
Net Change in Unrealized Appreciation on Non-Controlled, Non-Affiliated Investments and Cash Equivalents	$	1,809,240		$	1,039,586	$	3,414,706		$	3,763,021
Net Change in Unrealized Appreciation on Non-Controlled, Affiliated Investments and Cash Equivalents		-			66,667		(72,185	)		(72,185	)
Benefit (provision) for taxes on unrealized gain on investments	$	(9,194	)	$	—	$	(9,194	)	$	8,593
Net Increase in Net Assets Resulting from Operations	$	7,603,246		$	6,044,766	$	14,947,175		$	12,069,518
Net Investment Income Per Share	$	0.30		$	0.32	$	0.58		$	0.65
Net Increase in Net Assets Resulting from Operations Per Share	$	0.48		$	0.39	$	0.94		$	0.87
Weighted Average Shares of Common Stock Outstanding		15,953,810			15,347,814		15,953,328			13,921,808
Distributions Per Share	$	0.34		$	0.34	$	0.68		$	0.68

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

	For the			For the
	six			six
	months ended			months ended
	June 30,			June 30,
	2018			2017
Increase in Net Assets Resulting from Operations
Net investment income	$	9,202,615		$	9,082,086
Net realized gain/(loss) on investments and cash equivalents		2,411,233			(711,997	)
Net change in unrealized appreciation on investments and cash equivalents		3,342,521			3,690,836
Benefit (provision) for taxes on unrealized appreciation on investments		(9,194	)		8,593
Net Increase in Net Assets Resulting from Operations	$	14,947,175		$	12,069,518
Stockholder distributions
Net investment income		(10,845,182	)		(9,558,748	)
Total Distributions	$	(10,845,182	)	$	(9,558,748	)
Capital share transactions
Issuance of common stock	$	94,788		$	44,591,250
Sales load		—			(1,296,625	)
Offering costs		—			(234,007	)
Partial Share Redemption		(568	)		—
Net increase in net assets resulting from capital share transactions	$	94,220		$	43,060,618
Total increase in net assets	$	4,196,213		$	45,571,388
Net assets at beginning of period	$	220,247,242		$	170,881,785
Net assets at end of period (includes $2,078,361 and $912,456 of distributions in excess of net investment income, respectively)	$	224,443,455		$	216,453,173

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

	For the			For the
	six			six
	months ended			months ended
	June 30,			June 30,
	2018			2017
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net Increase in net assets resulting from operations	$	14,947,175			12,069,518
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of investments		(166,916,853	)		(47,994,614	)
Proceeds from sales and repayments of investments		45,807,477			79,950,227
Net change in unrealized appreciation on investments		(3,342,521	)		(3,690,836	)
Increase in investments due to PIK		(297,965	)		(145,445	)
Amortization of premium and accretion of discount, net		(736,268	)		(575,750	)
Deferred tax provision (benefit)		9,194			(8,593	)
Amortization of loan structure fees		170,335			247,181
Amortization of deferred financing costs		167,316			88,856
Amortization of loan fees on SBA-guaranteed debentures		280,605			161,313
Net realized loss (gain) on investments		(2,411,233	)		711,997
Changes in other assets and liabilities
Decrease (increase) in interest receivable		(880,444	)		593,912
Increase in other receivable		(37,647	)		(7,595	)
Decrease in prepaid expenses		145,518			153,503
Decrease in management fees payable		(72,569	)		(585,284	)
Increase in incentive fees payable		1,153,673			70,343
Increase in capital gains incentive fees payable		522,019			—
Increase in administrative services payable		541			43,682
Increase (decrease) in interest payable		521,659			(85,667	)
Increase in unearned revenue		72,806			2,333
Increase (decrease) in other accrued expenses and liabilities		496,892			(100,088	)
Net cash provided by (used in) operating activities	$	(110,400,290	)	$	40,898,993
Cash flows from financing activities
Proceeds from the issuance of common stock	$	—		$	44,591,250
Sales load for common stock issued		—			(1,296,625	)
Offering costs paid for common stock issued		—			(234,007	)
Stockholder distributions paid		(10,749,495	)		(9,200,437	)
Proceeds from SBA Debentures		40,000,000			—
Financing costs paid on SBA Debentures		(1,570,000	)		—
Borrowings under credit facility		175,300,000			18,000,000
Repayments of credit facility		(96,750,000	)		(95,000,000	)
Partial Share Redemption		(568	)		—
Net cash provided by (used in) financing activities	$	106,229,937		$	(43,139,819	)
Net decrease in cash and cash equivalents	$	(4,170,353	)	$	(2,240,826	)
Cash and cash equivalents balance at beginning of period		25,110,718			9,194,129
Cash and cash equivalents balance at end of period	$	20,940,365		$	6,953,303
Supplemental and non-cash financing activities
Interest expense paid	$	4,297,709		$	3,432,756
Excise tax paid		27,717			37,648
Shares issued pursuant to Dividend Reinvestment Plan		94,788			—
Conversion from debt to equity		—			864,101
Increase in Distribution Payable		899			358,311

Stellus Capital Investment Corporation

Consolidated Schedule of Investments (unaudited)

June 30, 2018

Investments	Footnotes	Security	Coupon	LIBOR floor	Cash	PIK	Investment Date	Maturity	Headquarters/ Industry	Principal Amount/ Shares		Amortized Cost		Fair Value ⁽¹⁾		% of Net Assets

Non-controlled, affiliated investments	(2)
Glori Energy Production Inc.									Houston, TX
Glori Energy Production, LLC Class A Common Units	(4)	Equity					2/1/2017		Energy: Oil & Gas		1,000 shares		135,518		140,000		0.06	%
Subtotal Non-controlled, affiliated investments													135,518		140,000		0.06	%

Non-controlled, non-affiliated investments	(2)
Abrasive Products & Equipment, LLC, et al									Deer Park, TX
Term Loan (SBIC)	(2)(12)(20)	Second Lien	3M L+10.50%	1.00%	0.00%		9/5/2014	3/5/2020	Chemicals, Plastics, & Rubber	$	5,325,237	$	5,283,316	$	4,710,000		2.10	%
APE Holdings, LLC Class A Common Units	(4)	Equity					9/5/2014				375,000 units		375,000		50,000		0.02	%
Total													5,658,316		4,760,000		2.12	%
Apex Environmental Resources Holdings, LLC									Amsterdam, OH
Common Units	(4)	Equity					10/30/2015		Environmental Industries		915 shares		915		899		0.00	%
Preferred Units	(4)	Equity									915 shares		915,262		899,101		0.40	%
Total							10/30/2015						916,177		900,000		0.40	%
Atmosphere Aggregator Holdings II, LP									Atlanta, GA
Common Units	(4)	Equity					6/30/2015		Services: Business		254,250 units		254,250		977,252		0.44	%
Atmosphere Aggregator Holdings, LP Common Units	(4)	Equity					6/30/2015				750,000 units		750,000		2,882,748		1.28	%
Total													1,004,250		3,860,000		1.72	%
ASC Communications, LLC	(7)								Chicago, IL
Term Loan (SBIC)	(2)(12)	First Lien	1M L+5.75%	1.00%	7.84%		6/29/2017	6/29/2022	Healthcare & Pharmaceuticals	$	5,795,833		5,747,609		5,795,833		2.58	%
ASC Communications Holdings, LLC Class A Preferred Units (SBIC)	(2)(4)	Equity					6/29/2017				73,529 shares		495,283		730,000		0.33	%
Total													6,242,892		6,525,833		2.91	%
Beneplace, LLC									Austin TX
Term Loan (SBIC)	(2)(12)	Second Lien	3M L+10.00%	1.00%	12.34%		3/27/2017	9/27/2022	FIRE: Insurance	$	5,000,000		4,917,548		5,000,000		2.23	%
Beneplace Holdings, LLC Preferred Units	(4)	Equity					3/27/2017				500,000 units		500,000		500,000		0.22	%
Total													5,417,548		5,500,000		2.45	%
BFC Solmetex, LLC	(19)								Nashville, TN
Term Loan (SBIC)	(2)(12)	First Lien	3M L+6.25%	1.00%	8.59%		4/2/2018	4/2/2023	Services: Business	$	7,860,636		7,747,524		7,750,000		3.45	%
Bonded Filter Co. LLC, Term Loan (SBIC)	(2)(12)	First Lien	3M L+6.25%	1.00%	8.59%		4/2/2018	4/2/2023		$	1,222,494		1,204,903		1,200,000		0.53	%
Total													8,952,427		8,950,000		3.98	%
BW DME Acquisition, LLC									Tempe, AZ
Term Loan (SBIC)	(2)(12)(13)(22)	First Lien	3M L+6.00%	1.00%	10.55%		8/24/2017	8/24/2022	Healthcare & Pharmaceuticals	$	16,695,804		16,253,248		16,610,000		7.40	%
BW DME Holdings, LLC, Term Loan (SBIC)	(6)	Unsecured	17.50%			17.50%	6/1/2018	12/31/2019		$	254,673		254,673		250,000		0.11	%
BW DME Holdings, LLC Class A-1 Preferred Units	(4)	Equity					8/24/2017				1,000,000 shares		1,000,000		1,037,547		0.46	%
BW DME Holdings, LLC Class A-2 Preferred Units	(4)	Equity					1/26/2018				937,261 shares		937,261		972,453		0.43	%
Total													18,445,182		18,870,000		8.40	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments (unaudited) – (continued)

June 30, 2018

Investments	Footnotes	Security	Coupon	LIBOR floor	Cash	PIK	Investment Date	Maturity	Headquarters/ Industry	Principal Amount/ Shares		Amortized Cost		Fair Value ⁽¹⁾		% of Net Assets

C.A.R.S. Protection Plus, Inc.									Murrysville, PA
Term Loan	(12)	First Lien	3M L+8.50%	0.50%	10.81%		12/23/2015	12/31/2020	Automotive	$	98,746		97,642		98,746		0.04	%
Term Loan (SBIC)	(2)(12)	First Lien	3M L+8.50%	0.50%	10.81%		12/23/2015	12/31/2020		$	7,702,191		7,616,097		7,702,191		3.43	%
CPP Holdings LLC Class A Common Units	(4)	Equity					12/23/2015				149,828 shares		149,828		190,000		0.08	%
Total													7,863,567		7,990,937		3.55	%
Catapult Learning, Inc.	(8)								Camden, NJ
Term Loan	(12)(13)(22)	First Lien	2M L+6.35%	1.00%	11.50%		6/27/2018	4/24/2023	Education	$	20,856,549		20,439,418		20,440,000		9.11	%
Colford Capital Holdings, LLC									New York, NY
Preferred Units	(4)(5)	Equity					8/20/2015		Finance		38,893 units		497,385		460,000		0.20	%
Condor Borrower, LLC									Clifton, NJ
Term Loan	(12)	Second Lien	3M L+8.75%	1.00%	11.11%		10/11/2017	4/27/2025	Services: Business	$	13,750,000		13,491,914		13,680,000		6.10	%
Condor Top Holdco Limited Convertible Preferred Shares	(4)	Equity					10/11/2017				500,000 shares		442,197		309,538		0.14	%
Condor Holdings Limited Preferred Shares, Class B	(4)	Equity					10/11/2017				500,000 shares		57,804		40,462		0.02	%
Total													13,991,915		14,030,000		6.26	%
Dream II Holdings, LLC									Boca Raton, FL
Class A Common Units	(4)	Equity					10/20/2014		Services: Consumer		250,000 units		242,304		260,000		0.12	%
DTE Enterprises, LLC	(18)								Roselle, IL
Term Loan	(12)	First Lien	3M L+7.50%	1.50%	9.85%		4/13/2018	4/13/2023	Energy: Oil & Gas	$	13,795,313		13,530,099		13,520,000		6.02	%
DTE Holding Company, LLC Common Shares, Class A-2	(4)	Equity					4/13/2018				776,316 shares		776,316		776,316		0.35	%
DTE Holding Company, LLC Preferred Shares, Class AA	(4)	Equity					4/13/2018				723,684 shares		723,684		723,684		0.32	%
Total													15,030,099		15,020,000		6.69	%
Empirix Inc.									Billerica, MA
Term Loan	(12)	Second Lien	3M L+9.50%	1.00%	11.81%		11/1/2013	5/1/2020	Software	$	11,657,850		11,574,680		11,657,850		5.19	%
Term Loan (SBIC)	(2)(12)	Second Lien	3M L+9.50%	1.00%	11.81%		11/1/2013	5/1/2020		$	9,750,000		9,678,405		9,750,000		4.34	%
Empirix Holdings I, Inc. Common Shares, Class A	(4)	Equity					11/1/2013				1,304 shares		1,304,232		1,356,300		0.60	%
Empirix Holdings I, Inc. Common Shares, Class B	(4)	Equity					11/1/2013				1,317,406 shares		13,174		13,700		0.01	%
Total													22,570,491		22,777,850		10.14	%
Energy Labs Inc.									Houston, TX
Term Loan (SBIC)	(2)(13)(22)	First Lien	3M L+7.00%	0.50%	12.20%		9/29/2016	9/29/2021	Energy: Oil & Gas	$	8,442,748		8,309,338		8,440,000		3.76	%
Energy Labs Holding Corp. Common Stock	(4)	Equity					9/29/2016				500 shares		500,000		370,000		0.16	%
Total													8,809,338		8,810,000		3.92	%
EOS Fitness OPCO Holdings, LLC									Phoenix, AZ
Term Loan (SBIC)	(2)(12)	First Lien	1M L+8.25%	0.75%	10.24%		12/30/2014	12/30/2019	Hotel, Gaming, & Leisure	$	3,107,733		3,085,522		3,107,733		1.38	%
EOS Fitness Holdings, LLC Class A Preferred Units	(4)	Equity					12/30/2014				118 shares		117,670		243,750		0.11	%
EOS Fitness Holdings, LLC Class B Common Units	(4)	Equity					12/30/2014				3,017 shares		3,017		6,250		0.00	%
Total													3,206,209		3,357,733		1.49

Stellus Capital Investment Corporation

Consolidated Schedule of Investments (unaudited) – (continued)

June 30, 2018

Investments	Footnotes	Security	Coupon	LIBOR floor	Cash	PIK	Investment Date	Maturity	Headquarters/ Industry	Principal Amount/ Shares		Amortized Cost		Fair Value ⁽¹⁾		% of Net Assets

Fast Growing Tree, LLC	(16)								Fort Mill, SC
Term Loan (SBIC)	(2)(12)	First Lien	3M L+7.75%	1.00%	10.09%		2/5/2018	02/05/23	Retail	$	20,405,000		20,024,193		20,100,000		8.96	%
SP FGT Holdings, LLC, Class A Common	(4)	Equity					2/5/2018				1,000,000 shares		1,000,000		1,070,000		0.48	%
Total													21,024,193		21,170,000		9.44	%
Fumigation Holdings, Inc.									Liberty, MO
Class A Common Stock	(4)	Equity					6/30/2015		Chemicals, Plastics, & Rubber		250 shares		0		290,000		0.13	%
Furniture Factory Outlet, LLC									Fort Smith, AR
Term Loan	(12)	First Lien	3M L+9.00%	0.50%	11.34%		6/10/2016	6/10/2021	Consumer Goods: Durable	$	15,284,585		15,045,568		15,280,000		6.81	%
Furniture Factory Holdings, LLC Term Loan	(11)	Unsecured	11.00%				6/10/2016	2/3/2021		$	122,823		122,823		120,000		0.05	%
Sun Furniture Factory, LP Common Units	(4)	Equity					6/10/2016				13,445 shares		94,569		240,000		0.11	%
Total													15,262,960		15,640,000		6.97	%
GK Holdings, Inc.									Cary, NC
Term Loan	(12)	Second Lien	3M L+10.25%	1.00%	12.58%		2/6/2015	1/30/2022	Education	$	5,000,000		4,939,453		4,480,000		2.00	%
General LED OPCO, LLC									San Antonio, TX
Term Loan	(12)	Second Lien	3M L+9.00%	1.50%	11.34%		5/1/2018	11/1/2023	Services: Business	$	4,500,000		4,412,048		4,410,000		1.96	%
Good Source Solutions, Inc.									Carlsbad, CA
Term Loan	(13)(22)	First Lien	3M L+6.00%	1.00%	10.68%		6/29/2018	6/29/2023	Beverage, Food, & Tobacco	$	28,500,000		27,930,000		27,930,000		12.44	%
HV GS Acquisition, LLC Class A Preferred Units	(4)	Equity					6/29/2018				1,000 shares		1,000,000		1,000,000		0.45	%
HV GS Acquisition, LLC Class B Common Units	(4)	Equity					6/29/2018				28,125 shares		0		0		0.00	%
Total													28,930,000		28,930,000		12.89	%
Grupo HIMA San Pablo, Inc., et al									San Juan, PR
Term Loan	(12)	First Lien	3M L+7.00%	1.50%	9.37%		2/1/2013	1/31/2018	Healthcare & Pharmaceuticals	$	4,750,000		4,750,000		4,180,000		1.86	%
Term Loan	(15)	Second Lien	13.75%		0.00%		2/1/2013	7/31/2018		$	4,109,524		4,105,100		900,000		0.40	%
Total													8,855,100		5,080,000		2.26	%
Hostway Corporation									Chicago, IL
Term Loan	(12)	Second Lien	3M L+4.25%	1.25%	6.34%		12/27/2013	12/13/2020	High Tech Industries	$	6,750,000		6,690,278		6,040,000		2.69	%
ICD Intermediate Holdco 2, LLC									San Francisco, CA
Term Loan (SBIC)	(2)(5)(12)	Second Lien	3M L+9.00%	1.00%	11.34%		1/2/2018	7/1/2024	Finance	$	10,000,000		9,811,058		9,900,000		4.41	%
ICD Holdings, LLC, Class A Preferred	(4)(5)	Equity					1/2/2018				9,962 shares		496,218		540,000		0.24	%
Total													10,307,276		10,440,000		4.65	%
J.R. Watkins, LLC	(9)								San Francisco, CA
Term Loan (SBIC)	(2)(12)	First Lien	3M L+6.50%	1.25%	8.84%		12/22/2017	12/22/2022	Consumer Goods: non-durable	$	12,437,500		12,209,286		12,310,000		5.48	%
J.R. Watkins Holdings, Inc. Class A Preferred	(4)	Equity					12/22/2017				1,000 shares		1,000,000		1,020,000		0.45	%
Total													13,209,286		13,330,000		5.93	%
Kelleyamerit Holdings, Inc.									Walnut Creek, CA
Term Loan	(12)(13)(22)	First Lien	3M L+7.50%	3.07%	10.57%		3/30/2018	3/30/2023	Automotive	$	9,750,000		9,562,412		9,560,000		4.26	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments (unaudited) – (continued)

June 30, 2018

Investments	Footnotes	Security	Coupon	LIBOR floor	Cash	PIK	Investment Date	Maturity	Headquarters/ Industry	Principal Amount/ Shares		Amortized Cost		Fair Value ⁽¹⁾		% of Net Assets

Keais Records Service, LLC									Houston, TX
Term Loan	(12)	Second Lien	3M L+10.50%	0.50%	12.84%		6/30/2016	6/30/2022	Services: Business	$	7,750,000		7,647,383		7,750,000		3.45	%
Keais Holdings, LLC Class A Units	(4)	Equity					6/30/2016				148,335 units		748,239		720,000		0.32	%
Total													8,395,622		8,470,000		3.77	%
KidKraft, Inc.									Dallas, TX
Term Loan	(6)	Second Lien	12.00%		11.00%	1.00%	9/30/2016	3/30/2022	Consumer Goods: Durable	$	9,361,700		9,222,329		9,130,000		4.07	%
Livingston International, Inc.									Toronto, Ontario
Term Loan	(5)(12)	Second Lien	3M L+8.25%	1.25%	10.58%		4/23/2013	4/18/2020	Transportation: Cargo	$	6,841,739		6,796,857		6,840,000		3.05	%
Madison Logic, Inc.									New York, NY
Term Loan (SBIC)	(2)(12)	First Lien	1M L+8.00%	0.50%	10.09%		11/30/2016	11/30/2021	Media: Broadcasting & Subscription	$	4,792,356		4,757,416		4,790,000		2.13	%
Madison Logic Holdings, Inc. Common Stock (SBIC)	(2)(4)	Equity					11/30/2016				5,000 shares		50,000		57,000		0.03	%
Madison Logic Holdings, Inc. Series A Preferred Stock (SBIC)	(2)(4)	Equity					11/30/2016				4,500 shares		450,000		513,000		0.23	%
Total													5,257,416		5,360,000		2.39	%
Magdata Intermediate Holdings, LLC									Austin TX
Term Loan	(12)	Second Lien	3M L+9.50%	1.00%	11.84%		10/13/2017	4/16/2024	Software	$	14,750,000		14,473,288		14,600,000		6.50	%
Mobileum, Inc.									Santa Clara, CA
Term Loan	(12)	Second Lien	3M L+10.25%	0.75%	12.59%		11/1/2016	5/1/2022	Software	$	21,500,000		21,124,857		21,500,000		9.58	%
Mobile Acquisition Holdings, LP Class A-2 Common Units	(4)	Equity					11/1/2016				750 units		455,385		750,000		0.33	%
Total													21,580,242		22,250,000		9.91	%
MBS Holdings, Inc.									Birmingham, AL
Series E Preferred Stock	(4)	Equity					3/10/2014		Media: Broadcasting & Subscription		2,774,695 shares		1,000,000		3,298,301		1.47	%
Series F Preferred Stock	(4)	Equity					3/10/2014				399,308 shares		206,682		681,699		0.30	%
Total													1,206,682		3,980,000		1.77	%
MTC Parent, L.P.									Oak Brook, IL
Class A-2 Common Units	(4)	Equity					12/1/2015		Finance		750,000 shares		0		2,470,000		1.10	%
National Trench Safety, LLC, et al									Houston, TX
Term Loan (SBIC)	(2)	Second Lien	11.50%		11.50%		3/31/2017	3/31/2022	Construction & Building	$	10,000,000		9,859,516		9,800,000		4.37	%
NTS Investors, LP Class A Common Units	(4)	Equity					3/31/2017				2,335 units		500,000		370,000		0.16	%
Total													10,359,516		10,170,000		4.53	%
OGS Holdings, Inc.									Chantilly, Virginia
Series A Convertible Preferred Stock	(4)	Equity					4/22/2014		Services: Government		11,521 shares		50,001		110,000		0.05	%
Price for Profit, LLC	(17)								Cleveland, OH
Term Loan (SBIC)	(2)(12)	First Lien	3M L+6.50%	1.00%	8.84%		1/31/2018	1/31/2023	Services: Business	$	10,931,250		10,727,707		10,770,000		4.80	%
I2P Holdings, LLC, Series A Preferred	(4)	Equity					1/31/2018				750,000 shares		750,000		820,000		0.37	%
Total													11,477,707		11,590,000		5.17	%
Protect America, Inc.									Austin TX
Term Loan (SBIC)	(2)(6)(12)	Second Lien	3M L+9.75%	1.00%	10.13%	2.00%	8/30/2017	10/30/2020	Services: Consumer	$	17,796,372		17,461,398		17,620,000		7.85	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments (unaudited) – (continued)

June 30, 2018

Investments	Footnotes	Security	Coupon	LIBOR floor	Cash	PIK	Investment Date	Maturity	Headquarters/ Industry	Principal Amount/ Shares		Amortized Cost		Fair Value ⁽¹⁾		% of Net Assets

Refac Optical Group, et al									Blackwood, NJ
Revolver	(10)(12)	First Lien	1M L+8.00%		10.10%		11/7/2012	9/30/2018	Retail	$	880,000		880,000		880,000		0.39	%
Term A Loan	(12)	First Lien	1M L+8.00%		10.10%		11/7/2012	9/30/2018		$	708,167		708,167		708,167		0.32	%
Term B Loan	(6)(12)	First Lien	1M L+10.75%		11.10%	1.75%	11/7/2012	9/30/2018		$	6,501,106		6,501,106		6,501,106		2.90	%
Total													8,089,273		8,089,273		3.61
Resolute Industrial, LLC	(14)								Wheeling, IL
Term Loan	(12)(21)(22)	First Lien	3M L+7.62%	1.00%	9.92%		7/26/2017	7/26/2022	Capital Equipment	$	3,797,222		3,745,052		3,780,000		1.68	%
Term Loan (SBIC)	(2)(12)(21)(22)	First Lien	3M L+7.62%	1.00%	9.92%		7/26/2017	7/26/2022		$	13,290,278		13,107,641		13,220,000		5.89	%
Resolute Industrial Holdings, LLC Class A Preferred Units	(4)	Equity					7/26/2017				601 units		750,000		1,120,000		0.50	%
Total													17,602,693		18,120,000		8.07	%
Roberts-Gordon, LLC									Buffalo, NY
Term Loan	(12)	Second Lien	3M L+10.00%	1.00%	12.34%		6/30/2017	1/1/2022	Construction & Building	$	7,200,000		7,081,284		7,160,000		3.19	%
Specified Air Solutions, LLC Class A Common Units	(4)	Equity					6/30/2017				3,846 shares		500,045		440,000		0.20	%
Total													7,581,329		7,600,000		3.39	%
Sitel Worldwide Corporation									Nashville, TN
Term Loan	(12)	Second Lien	3M L+9.50	1.00%	11.88%		9/22/2015	9/18/2022	High Tech Industries	$	10,000,000		9,861,128		10,000,000		4.46	%
Skopos Financial, LLC									Irving, TX
Term Loan	(5)	Unsecured	12.00%		12.00%		1/31/2014	1/31/2019	Finance	$	17,500,000		17,445,736		17,330,000		7.72	%
Skopos Financial Group, LLC Class A Units	(4)(5)	Equity					1/31/2014				1,120,684 units		1,162,544		1,110,000		0.49	%
Total													18,608,280		18,440,000		8.21	%
SQAD, LLC									Tarrytown, NY
Term Loan (SBIC)	(2)	First Lien	3M L+6.50	1.00%	8.83%		12/22/2017	12/22/2022	Media: Broadcasting & Subscription	$	14,961,500		14,888,374		14,960,000		6.67	%
SQAD Holdco, Inc. Preferred Shares, Series A (SBIC)	(2)(4)	Equity					10/31/2013				5,624 shares		156,001		221,342		0.10	%
SQAD Holdco, Inc. Common Shares (SBIC)	(2)(4)	Equity					10/31/2013				5,800 shares		62,485		88,658		0.04	%
Total													15,106,860		15,270,000		6.81	%
TechInsights, Inc.									Ottawa, Ontario
Term Loan	(5)(12)(13)(22)	First Lien	3M L+6.50%	1.00%	9.05%		8/16/2017	8/16/2022	High Tech Industries	$	19,234,973		18,821,654		19,230,000		8.57	%
Time Manufacturing Acquisition, LLC									Waco, TX
Term Loan	(6)	Unsecured	11.50%		10.75%	0.75%	2/3/2017	8/3/2023	Capital Equipment	$	6,385,182		6,278,146		6,290,000		2.80	%
Time Manufacturing Investments, LLC Class A Common Units	(4)	Equity					2/3/2017				5,000 units		500,000		510,000		0.23	%
Total													6,778,146		6,800,000		3.03	%
TFH Reliability, LLC									Houston, TX
Term Loan (SBIC)	(2)(12)	Second Lien	3M L+10.75%	0.50%	13.09%		10/20/2016	4/21/2022	Chemicals, Plastics, & Rubber	$	5,875,000		5,784,723		5,875,000		2.62	%
TFH Reliability Group, LLC Class A Common Units	(4)	Equity					10/20/2016				250,000 shares		231,521		520,000		0.23	%
Total													6,016,244		6,395,000		2.85	%
U.S. Auto Sales, Inc. et al									Lawrenceville, GA
Term Loan	(5)(12)	Second Lien	1M L+10.50%	1.00%	12.49%		6/8/2015	6/8/2020	Finance	$	4,500,000		4,479,586		4,500,000		2.00	%
USASF Blocker II, LLC Common Units	(4)(5)	Equity					6/8/2015				441 units		441,000		520,380		0.23	%
USASF Blocker III, LLC Series C Preferred Units	(4)(5)	Equity					2/13/2018				50 Units		50,000		59,000		0.03
USASF Blocker LLC Common Units	(4)(5)	Equity					6/8/2015				9,000 units		9,000		10,620		0.00	%
Total													4,979,586		5,090,000		2.26	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments (unaudited) – (continued)

June 30, 2018

Investments	Footnotes	Security	Coupon	LIBOR floor	Cash	PIK	Investment Date	Maturity	Headquarters/ Industry	Principal Amount/ Shares		Amortized Cost		Fair Value ⁽¹⁾			% of Net Assets

VRI Intermediate Holdings, LLC									Franklin, OH
Term Loan (SBIC)	(2)(12)	Second Lien	3M L+9.25%	1.00%	11.59%		5/31/2017	10/31/2020	Healthcare & Pharmaceuticals	$	9,000,000		8,869,994		8,960,000			3.99	%
VRI Ultimate Holdings, LLC Class A Preferred Units	(4)	Equity					5/31/2017				326,797 shares		500,000		500,000			0.22	%
Total													9,369,994		9,460,000			4.21	%
Wise Holding Corporation									Salt Lake City, UT
Term Loan	(12)(20)	Unsecured	3M L+11.00%	1.00%	0.00%		6/30/2016	12/31/2021	Beverage, Food, & Tobacco	$	1,250,000		1,236,656		630,000			0.28	%
WCI Holdings LLC Class A Preferred Units	(4)	Equity					6/30/2016				56 units		55,550		0			0.00	%
WCI Holdings LLC Class B Common Units	(4)	Equity					6/30/2016				3,044 units		3,044		0			0.00	%
Total													1,295,250		630,000			0.28	%

Total Non-controlled, non-affiliated investments													492,872,019		499,596,626			222.59	%
Net Investments													493,007,537		499,736,626			222.66	%
LIABILITIES IN EXCESS OF OTHER ASSETS															(275,293,171	)		(122.66	)%
NET ASSETS															224,443,455			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, which include $9,085,503 of cash and $198,558,584 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, as defined in Note 9, are secured by a first priority security interest in all investments and cash and cash equivalents, except for investments held by the SBIC Subsidiary.

(3)

These loans have LIBOR or Euro Floors that are higher than the current applicable LIBOR or Euro rates; therefore, the floors are in effect.

(4)

Security is non-income producing.

(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 88% of the Company’s total assets as of June 30, 2018.

(6)

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

(7)

Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $666,666, with an interest rate of LIBOR plus 6.25% and a maturity of June 29, 2022. This investment is accruing an unused commitment fee of 0.50% per annum.

(8)

Excluded from the investment is an undrawn delayed draw term loan commitment in an amount not to exceed $1,143,451, with an interest rate of LIBOR plus 6.35% and a maturity of April 23, 2023. This investment is accruing an unused commitment fee of 1.00% per annum.

Stellus Capital Investment Corporation

Consolidated Schedule of Investments (unaudited) – (continued)

June 30, 2018

(9)

Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,750,000, with an interest rate of LIBOR plus 6.50% and a maturity of December 22, 2022. This investment is accruing an unused commitment fee of 0.50% per annum.

(10)

Excluded from the investment is an undrawn commitment in an amount not to exceed $520,000, with an interest rate of LIBOR plus 8.00% and a maturity of September 30, 2018. This investment is accruing an unused commitment fee of 0.50% per annum.

(11)

Interest compounds annually on this loan at a rate of 11%. The interest does not increase the principal balance.

(12)

These loans have LIBOR floors that 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 commitment in an amount not to exceed $5,750,000, with an interest rate of LIBOR plus 7.62% and a maturity of July 26, 2022. This investment is accruing an unused commitment fee of 0.50% per annum.

(15)

Investment has been on non-accrual since November 1, 2017.

(16)

Excluded from the investment is an undrawn commitment in an amount not to exceed $1,000,000, with an interest rate of LIBOR plus 7.75% and a maturity of February 5, 2023. This investment is accruing an unused commitment fee of 0.50% per annum.

(17)

Excluded from the investment is an undrawn commitment in an amount not to exceed $1,500,000, with an interest rate of LIBOR plus 6.50% and a maturity of January 31, 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 7.50% and a maturity of April 13, 2023. This investment is accruing an unused commitment fee of 0.50% per annum.

(19)

Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $916,870, with an interest rate of LIBOR plus 6.25% and a maturity of April 02, 2023. This investment is accruing an unused commitment fee of 0.50% per annum.

(20)

Investment has been on non-accrual since March 29, 2018.

(21)

This loan is a last-out term loan with a set contractual rate that equals the current applicable LIBOR rate.

(22)

This loan is a unitranche investment.

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

Stellus Capital Investment Corporation

Consolidated Schedule of Investments
December 31, 2017

Investments	Footnotes	Security	Coupon		LIBOR floor			Cash			PIK	Initial Investment Date	Maturity	Headquarters/ Industry	Principal Amount/ Shares		Amortized Cost		Fair Value⁽¹⁾		% of Net Assets
Non-controlled, affiliated investments	(2)
Glori Energy Production Inc.														Houston, TX
Glori Energy Production, LLC Class A Common Units	(4)	Equity										2/1/2017		Energy: Oil & Gas		1,000 shares	$	1,052,185	$	990,000		0.45	%
Subtotal Non-controlled, affiliated investments																		1,052,185		990,000		0.45	%
Non-controlled, non-affiliated investments	(2)
Abrasive Products & Equipment, LLC, et al														Deer Park, TX
Term Loan (SBIC)	(2)(12)	Second Lien		3M L+10.50%		1.00	%		12.20	%		9/5/2014	3/5/2020	Chemicals, Plastics, & Rubber	$	5,325,237		5,272,397		5,220,000		2.37	%
APE Holdings, LLC Class A Common Units	(4)	Equity										9/5/2014				375,000 units		375,000		180,000		0.08	%
Total																		5,647,397		5,400,000		2.45	%
Apex Environmental Resources Holdings, LLC														Amsterdam, OH
Common Units	(4)	Equity										10/30/2015		Environmental Industries		766 shares		766		579		0.00	%
Preferred Units	(4)	Equity										10/30/2015				766 shares		765,676		579,421		0.26	%
Total																		766,442		580,000		0.26	%
Atmosphere Aggregator Holdings II, LP														Atlanta, GA
Common Units	(4)	Equity										6/30/2015		Services: Business		254,250 units		254,250		820,284		0.37	%
Atmosphere Aggregator Holdings, LP Common Units	(4)	Equity										6/30/2015				750,000 units		750,000		2,419,714		1.10	%
Total																		1,004,250		3,239,998		1.47	%
ASC Communications, LLC	(7)													Chicago, IL
Term Loan (SBIC)	(2)(12)	First Lien		3M L+6.25%		1.00	%		7.94	%		6/29/2017	6/29/2022	Healthcare & Pharmaceuticals	$	6,879,167		6,816,044		6,879,167		3.12	%
ASC Communications Holdings, LLC Class A Preferred Units (SBIC)	(2)(4)	Equity										6/29/2017				73,529 shares		500,000		620,000		0.28	%
Total																		7,316,044		7,499,167		3.40	%
Beneplace, LLC														Austin TX
Term Loan (SBIC)	(2)(12)	Second Lien		3M L+10.00%		1.00	%		11.70	%		3/27/2017	9/27/2022	Insurance	$	5,000,000		4,910,226		5,000,000		2.27	%
Beneplace Holdings, LLC Preferred Units	(4)	Equity										3/27/2017				500,000 units		500,000		500,000		0.23	%
Total																		5,410,226		5,500,000		2.50	%
Binder & Binder National Social Security Disability Advocates, LLC	(8)													Hauppauge, NY
Residual claim from Term Loan	(4)	Unsecured										11/7/2012		Services: Consumer	$	400,000		400,000		380,000		0.17	%
BW DME Acquisition, LLC														Tempe, AZ
Term Loan (SBIC)	(2)(12)(13)(17)	First Lien		3M L+6.00%		1.00	%		9.43	%		8/24/2017	8/24/2022	Healthcare & Pharmaceuticals	$	9,550,000		9,281,016		9,310,000		4.23	%
BW DME Holdings, LLC Class A Preferred Units	(4)	Equity										8/24/2017				1,000,000 shares		1,000,000		1,110,000		0.50	%
Total																		10,281,016		10,420,000		4.73	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments – (continued)
December 31, 2017

Investments	Footnotes	Security	Coupon		LIBOR floor			Cash			PIK	Initial Investment Date	Maturity	Headquarters/ Industry	Principal Amount/ Shares		Amortized Cost		Fair Value⁽¹⁾		% of Net Assets
C.A.R.S. Protection Plus, Inc.														Murrysville, PA
Term Loan	(12)	First Lien		1M L+8.50%		0.50	%		9.74	%		12/23/2015	12/31/2020	Automotive	$	98,746	$	97,451	$	98,746		0.04	%
Term Loan (SBIC)	(2)(12)	First Lien		3M L+8.50%		0.50	%		9.74	%		12/23/2015	12/31/2020		$	7,702,191		7,601,191		7,700,000		3.50	%
CPP Holdings LLC Class A Common Units	(4)	Equity										12/23/2015				149,828 shares		149,828		260,000		0.12	%
Total																		7,848,470		8,058,746		3.66	%
Catapult Learning, LLC et al														Camden, NJ
Term Loan	(13)(17)	First Lien		3M L+6.50%		1.00	%		9.30	%		8/6/2015	7/16/2020	Education	$	12,335,526		12,264,670		12,335,526		5.60	%
Colford Capital Holdings, LLC														New York, NY
Preferred Units	(4)(5)	Equity										8/20/2015		Finance		38,893