gecc-10q_20180930.htm

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.

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 ☒

As of November 5, 2018, the registrant had 10,652,401 shares of common stock, $0.01 par value per share, outstanding.

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “Form 10-K”).

The information contained herein may contain “forward-looking statements” based on our current expectations, assumptions and estimates about us and our industry. These forward-looking statements involve risks and uncertainties. Words such as “anticipate,” “believe,” “expect,” “intend,” “will,” “should,” “could,” “may,” “plan” and other similar expressions identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results could differ materially from those we express in the forward-looking statements as a result of several factors more fully described in “Risk Factors” and elsewhere in our Form 10-K and in this Quarterly Report on Form 10-Q (the “Form 10-Q”). The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update publicly any forward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as required by law.

Unless the context otherwise requires, all references to “GECC,” “we,” “us,” “our,” the “Company” and words of similar import are to Great Elm Capital Corp. and/or its subsidiaries. We reference materials on our website, www.greatelmcc.com, but nothing on our website shall be deemed incorporated by reference or otherwise contained in this report. All dollar amounts, other than per share amounts, are disclosed in thousands unless otherwise noted.

The financial statements listed in the index to consolidated financial statements immediately following the signature page to this report are incorporated herein by reference.

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

We are a business development company (“BDC”) that seeks to generate both current income and capital appreciation through debt and equity investments. Our investment focus is on debt obligations of middle-market companies as well as small businesses. We invest primarily in senior secured and senior unsecured debt instruments as well as in junior loans and mezzanine debt of middle-market companies and small businesses. We will from time to time make equity investments as part of restructuring credits and in rare instances reserve the right to make equity investments directly.

On September 27, 2016, we and Great Elm Capital Management, Inc. (“GECM”), our external manager, entered into an investment management agreement (the “Investment Management Agreement”) and an administration agreement (the “Administration Agreement”), and we began to accrue obligations to GECM under those agreements.

We have elected to be treated as a Regulated Investment Company (“RIC”) for U.S. federal income tax purposes. As a RIC, we will not be taxed on our income to the extent that we distribute such income each year and satisfy other applicable income tax requirements. To qualify as a RIC, we must, among other things, meet source-of-income and asset diversification requirements and annually distribute to our stockholders generally at least 90% of our investment company taxable income on a timely basis. If we qualify as a RIC, we generally will not have to pay corporate level taxes on any income that we distribute to our stockholders.

Our level of investment activity varies substantially from period to period depending on many factors, including, among others, the amount of debt and equity capital available to middle-market companies from other sources, the level of merger and acquisition activity, pricing in the high yield and leveraged loan credit markets, our expectations of future investment opportunities, the general economic environment and the competitive environment for the types of investments we make. As a BDC, our investments and the composition of our portfolio are required to comply with regulatory requirements.

We generate revenue primarily from interest on the debt investments that we hold. We may also generate revenue from dividends on the equity investments, capital gains on the disposition of investments, and lease, fee, or other income. Our investments in fixed income instruments generally have an expected maturity of three to five years, although we have no lower or upper constraint on maturity. Our debt investments generally pay interest quarterly or semi-annually. Payments of principal of our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments and preferred stock investments may defer payments of cash interest or dividends or pay in kind. In addition, we may generate revenue in the form of prepayment fees, commitment, origination, due diligence fees, end-of-term or exit fees, fees for providing significant managerial assistance, consulting fees and other investment-related income.

Our primary operating expenses include the payment of a base management fee, administration fees (including the allocable portion of overhead under the Administration Agreement), and, depending on our operating results, an incentive fee. The base management fee and incentive fee remunerates GECM for work in identifying, evaluating, negotiating, closing and monitoring our investments. Our Administration Agreement provides for reimbursement of costs and expenses incurred for office space rental, office equipment and utilities allocable to us under the Administration Agreement, as well as costs and expenses incurred relating to non-investment advisory, administrative or operating services provided by GECM or its affiliates to us. We also bear all other costs and expenses of our operations and transactions. Our expenses include interest on our outstanding indebtedness.

We value our portfolio investments at fair value based upon the principles and methods of valuation set forth in policies adopted by our board of directors (our “Board”). Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.

Investments for which market quotations are readily available are valued at such market quotations unless the quotations are deemed not to represent fair value. We generally obtain market quotations from recognized exchanges, market quotation systems, independent pricing services or one or more broker-dealers or market makers. Short-term debt investments with remaining maturities within 90 days are generally valued at amortized cost, which approximates fair value.

Debt and equity securities for which market quotations are not readily available or for which market quotations are deemed not to represent fair value, are valued at fair value using a valuation process consistent with our Board-approved policy. Our Board approves in good faith the valuation of our portfolio as of the end of each quarter. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that we may ultimately realize. In addition, changes in the market environment and other events may impact the market quotations used to value some of our investments.

The valuation process approved by our Board with respect to investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value is as follows:

Those investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount. In following these approaches, the types of factors that we may take into account in determining the fair value of our investments include, among other factors: available current market data, including relevant and applicable market trading and transaction comparables; applicable market yields and multiples, security covenants, call protection provisions, information rights, and the nature and realizable value of any collateral; the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, and merger and acquisition comparables; and enterprise values.

We prefer the use of observable inputs and minimize the use of unobservable inputs in our valuation process. Inputs refer broadly to the assumptions that market participants would use in pricing an asset. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the assumptions market participants would use in pricing an asset developed based on the best information available in the circumstances.

Investments are classified in accordance with accounting principles generally accepted in the United States of America into the three broad levels as follows:

All Level 3 investments that comprise more than 5% of the investments of GECC are valued by independent third parties.

Interest and dividend income, including payment-in-kind (“PIK”) income, is recorded on an accrual basis. Origination, structuring, closing, commitment and other upfront fees, including original issue discounts (“OID”), earned with respect to capital commitments are generally amortized or accreted into interest income over the life of the respective debt investment, as are end-of-term or exit fees receivable upon repayment of a debt investment if such fees are fixed in nature. Other fees, including certain amendment fees, prepayment fees and commitment fees on broken deals, and end-of-term or exit fees that have a contingency feature or are variable in nature are recognized as earned. Prepayment fees and similar income due upon the early repayment of a loan or debt security are recognized when earned and are included in interest income.

We may purchase debt investments at a discount to their face value. Discounts on the acquisition of corporate debt instruments are generally amortized using the effective-interest or constant-yield method, unless there are material questions as to collectability. For debt instruments where we are amortizing OID, when principal payments on the debt instrument are received in an amount in excess of the debt instrument’s amortized cost, the excess principal payments are recorded as interest income.

Net Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation)

We measure realized gains or losses by the difference between the net proceeds from the repayment or sale of an investment and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Realized gains and losses are computed using the first-in, first-out method. Net change in unrealized appreciation or depreciation reflects the net change in portfolio investment fair value and portfolio investment cost bases during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

The following is a summary of our investment activity since our inception in April 2016:

Time Period	Acquisitions⁽¹⁾		Dispositions⁽²⁾			Weighted Average Interest Rate End of Period⁽³⁾
Formation Transactions	$	90,494	$	-
Merger		74,658		-
November 4, 2016 through December 31, 2016		42,006		(41,738	)		10.00	%
For the period ended December 31, 2016		207,158		(41,738	)

Quarter ended March 31, 2017		75,852		(78,758	)		9.87	%
Quarter ended June 30, 2017		21,395		(37,570	)		9.59	%
Quarter ended September 30, 2017		49,467		(18,884	)		9.62	%
Quarter ended December 31, 2017		53,163		(39,772	)		11.17	%
For the year ended December 31, 2017		199,877		(174,984	)

Quarter ended March 31, 2018		63,220		(29,069	)		11.05	%
Quarter ended June 30, 2018		37,927		(27,729	)		9.94	%
Quarter ended September 30, 2018		38,969		(37,991	)		10.40	%
For the period ended September 30, 2018		140,116		(94,789	)

Since inception	$	547,151	$	(311,511	)

The following is a reconciliation of the investment portfolio for the nine months ended September 30, 2018 and the year ended December 31, 2017. Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, were excluded from the table below.

During the three and nine months ended September 30, 2018, inclusive of short-term securities, we recorded net change in unrealized depreciation of $1,275 and $(11,187), respectively.

The following table shows the fair value of our portfolio of investments by industry as of September 30, 2018:

Industry	Investments at Fair Value		Percentage of Net Assets
Food Products	$	1,979		1.55	%
Food & Staples Retailing		5,569		4.36	%
Building Cleaning and Maintenance Services		19,934		15.60	%
Business Services		9,918		7.76	%
Chemicals		9,431		7.38	%
Consumer Finance		2,346		1.84	%
Gaming, Lodging & Restaurants		9,841		7.70	%
Hotel Operator		2,751		2.15	%
Industrial Conglomerates		14,536		11.37	%
Information and Data Services		1,250		0.98	%
Manufacturing		17,281		13.52	%
Maritime Security Services		34		0.03	%
Radio Broadcasting		8,847		6.92	%
Real Estate Services		5,583		4.37	%
Retail		15,612		12.22	%
Software Services		8,957		7.01	%
Technology Services		15,738		12.31	%
Water Transport		10,618		8.31	%
Wireless Communications		272		0.21	%
Wireless Telecommunications Services		42,760		33.46	%
Short-Term Investments		75,862		59.36	%
Total	$	279,119		218.41	%

Interest income included net accretion of OID and market discount of $797 and $2,206 for the three and nine months ended September 30, 2018, respectively. Interest income also included accrued PIK income of $1,932 and $6,934 for the three and nine months ended September 30, 2018, respectively.

	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2018				2017				2018						2017
	In Thousands		Per Share⁽¹⁾		In Thousands		Per Share⁽²⁾		In Thousands			Per Share⁽¹⁾			In Thousands		Per Share⁽²⁾
Net Operating Expenses	$	3,495	$	0.33	$	2,896	$	0.26	$	8,212		$	0.77		$	8,876	$	0.74
Management fees		768		0.07		547		0.05		2,215		$	0.21			1,686		0.14
Incentive fees		576		0.05		890		0.08		(607	)	$	(0.06	)		2,784		0.23
Total advisory fees	$	1,344	$	0.13	$	1,437	$	0.13	$	1,608		$	0.15		$	4,470	$	0.37
Administration fees		202		0.02		287		0.03		999			0.09			1,054		0.09
Directors’ fees		51		0.00		40		0.00		150			0.01			88		0.01
Interest expense		1,457		0.14		717		0.06		4,188			0.39			1,979		0.16
Professional services		325		0.03		212		0.02		791			0.07			719		0.06
Custody fees		15		0.00		10		0.00		44			0.00			34		0.00
Other		101		0.01		193		0.02		432			0.04			462		0.04
Fee Waivers and Expense Reimbursement		-		-		-		-		-			-			70		0.01

Net expenses for the nine months ended September 30, 2018 decreased as compared to net expenses for the nine months ended September 30, 2017 primarily due to the reversal of $2,637 of incentive fees recorded in prior periods. Our largest investment, Avanti Communications Group plc (“Avanti”), has generated significant non-cash income in the form of PIK interest. In connection with the recent restructuring of Avanti, which closed on April 26, 2018, our investment in Avanti’s third lien senior secured notes (the “third lien notes”) was converted into Avanti common equity. As a result of this debt-for-equity conversion, we have determined that the accrued incentive fees payable associated with the portion of such PIK interest generated by the third lien notes should not at this time be recognized as a liability and as such we have reversed for prior periods. Notwithstanding this reversal, such incentive fees remain payable under the Investment Management Agreement (subject to achievement of return hurdles) and will be recognized as an expense to the extent that an exit or recovery results in gross proceeds to us in excess of our initial cost basis in the third lien notes.

Excluding the impact of the incentive fee reversal described above, net expenses for the three and nine months ended September 30, 2018 increased as compared to net expenses for the three and nine months ended September 30, 2017 primarily due to increased interest expense, as a result of having a greater amount of debt outstanding compared to the prior year. The GECCM Notes (as defined below) were newly issued in January 2018. See “—Liquidity and Capital Resources—Notes Payable” for further information.

During the three months ended September 30, 2018, we recorded net realized gains of $898, which primarily consist of approximately $702 in acceleration of original issue discount in connection with the restructuring of our investment in Speedwell Holdings (formerly known as The Selling Source, LLC) and net realized gain of $190 on the exercise of the RiceBran Technologies Corporation warrants and subsequent sale of the common stock received in that exercise.

Realized gains for the nine months ended September 30, 2018 also include realized gains in connection with principal amortization of loans that were acquired at a discount, and realized gains on the sale of the PR Wireless, Inc. senior secured loan, sales of NANA Development Corp. senior bonds and a partial repayment on our PE Facility Solutions, LLC Term Loan B.

Realized gains for the three months ended September 30, 2017 primarily consisted of principal amortization of loans acquired at a discount. During the nine months ended September 30, 2017 we recorded net realized gains of $3,420 primarily in connection with the disposition of several investments and the prepayment of a portion of our loan to Sonifi Solutions.

The following table summarizes the significant changes in unrealized appreciation (depreciation) of our investment portfolio, excluding the impact of unrealized appreciation (depreciation) on short-term securities such as U.S. Treasury Bills and money market mutual funds, for the nine months ended September 30, 2018.

				September 30, 2018							December 31, 2017
Portfolio Company	Change in Unrealized Appreciation (Depreciation)			Cost		Fair Value		Unrealized Appreciation (Depreciation)			Cost		Fair Value		Unrealized Appreciation (Depreciation)
Avanti Communications Group plc⁽¹⁾	$	(7,706	)	$	83,650	$	42,760	$	(40,890	)	$	75,461	$	42,277	$	(33,184	)
Tru Taj, LLC		(4,454	)		20,530		15,612	$	(4,918	)		15,264		14,800		(464	)
OPS Acquisitions Limited and Ocean Protection Services Limited		(1,736	)		4,240		34		(4,206	)		4,240		1,770		(2,470	)
Best Western Luling (fka Luling Lodging, LLC)		1,146			1,300		2,751		1,451			1,300		1,605		305
Commercial Barge Line Company		1,560			11,330		10,618		(712	)		7,551		5,279		(2,272	)
Other, net⁽²⁾		7			130,805		131,482		677			98,469		99,139		670
Totals	$	(11,183	)	$	251,855	$	203,257	$	(48,598	)	$	202,285	$	164,870	$	(37,415	)

				September 30, 2018							June 30, 2018
Portfolio Company	Change in Unrealized Appreciation (Depreciation)			Cost		Fair Value		Unrealized Appreciation (Depreciation)			Cost		Fair Value		Unrealized Appreciation (Depreciation)
Tru Taj, LLC	$	(1,554	)	$	20,530	$	15,612	$	(4,918	)	$	17,049	$	13,685	$	(3,364	)
Avanti Communications Group plc⁽¹⁾		620			83,650		42,760		(40,890	)		83,460		41,950		(41,510	)
Commercial Barge Line Company		626			11,330		10,618		(712	)		7,544		6,206		(1,338	)
International Wire Group Inc		762			16,545		17,281		736			16,476		16,450		(26	)
PE Facility Solutions, LLC		970			19,674		19,934		260			19,476		18,766		(710	)
Other, net⁽²⁾		(151	)		100,126		97,052		(3,074	)		105,169		102,246		(2,923	)
Totals	$	1,273		$	251,855	$	203,257	$	(48,598	)	$	249,174	$	199,303	$	(49,871	)

Net change in unrealized appreciation (depreciation) for the nine months ended September 30, 2017 was $(22,382). Net change in unrealized appreciation (depreciation) for the three months ended September 30, 2017 was $(12,361). In each of these periods, the change in unrealized appreciation (depreciation) was primarily driven by the performance of the investment in Avanti.

At September 30, 2018, we had approximately $4,060 of cash and cash equivalents, none of which was restricted in nature. At September 30, 2018, we also had $1,252 invested in a money market fund that is classified as an investment rather than cash and cash equivalents.

At September 30, 2018, we had investments in 29 debt instruments across 23 companies, totaling approximately $190,216 at fair value and equity investments in four companies, totaling approximately $13,041 at fair value.

In the normal course of business, we may enter into investment agreements under which we commit to make an investment in a portfolio company at some future date or over a specified period of time. As of September 30, 2018, we had approximately $17,360 in unfunded loan commitments, subject to our approval in certain instances, to provide debt financing to certain of our portfolio companies. We had sufficient cash and other liquid assets on our September 30, 2018 balance sheet to satisfy the unfunded commitments.

For the nine months ended September 30, 2018, net cash used for operating activities, consisting primarily of net purchases of investments and the items described in “—Results of Operations,” was approximately $(33,216), reflecting the purchases and repayments of investments offset by net investment income, including non-cash income related to OID and PIK income and proceeds from sales of investments and principal payments received. Net cash used for purchases and sales of investments was approximately $(37,035), reflecting principal repayments and sales of $94,789, offset by additional investments of $(131,824). Such amounts included draws and repayments on revolving credit facilities.

For the nine months ended September 30, 2018, net cash provided by financing activities was $34,360, which consisted primarily of $44,448 in cash proceeds from the issuance of the GECCM Notes partially offset by $(10,088) in distributions to investors.

A summary of our significant contractual payment obligations as of September 30, 2018 is as follows:

We have certain contracts under which we have material future commitments. Under the Investment Management Agreement, GECM provides investment advisory services to us. For providing these services, we pay GECM a fee, consisting of two components: (1) a base management fee based on the average value of our total assets and (2) an incentive fee based on our performance.

We are also party to the Administration Agreement with GECM. Under the Administration Agreement, GECM furnishes us with, or otherwise arranges for the provision of, office facilities, equipment, clerical, bookkeeping, finance, accounting, compliance and record keeping services at such office facilities and other such services as our administrator.

If any of the contractual obligations discussed above are terminated, our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Management Agreement and our Administration Agreement. Any new investment management agreement would also be subject to approval by our stockholders.

Both the Investment Management Agreement and the Administration Agreement may be terminated by either party without penalty upon no fewer than 60 days’ written notice to the other.

Inflation has not had a significant effect on our results of operations in any of the reporting periods presented in our financial statements. However, from time to time, inflation may impact the operating results of our portfolio companies.

We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.

On September 18, 2017, we sold $28,375 in aggregate principal amount of 6.50% notes due 2022 (the "GECCL Notes"). On September 29, 2017, we sold an additional $4,256 of the GECCL Notes upon full exercise of the underwriters’ over-allotment option. As a result of the issuance of these additional GECCL Notes, the aggregate principal balance of GECCL Notes outstanding is $32.6 million.

The GECCL Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The GECCL Notes are effectively subordinated, or junior in right of payment, to any future secured indebtedness that we may incur and structurally subordinated to all future indebtedness and other obligations of our subsidiaries. We pay interest on the GECCL Notes on January 31, April 30, July 31 and October 31 of each year. The GECCL Notes will mature on September 18, 2022 and can be called on, or after, September 18, 2019. Holders of the GECCL Notes do not have the option to have the GECCL Notes repaid prior to the stated maturity date. The GECCL Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.

On January 11, 2018, we sold $43,000 in aggregate principal amount of 6.75% notes due 2025 (the "GECCM Notes"). On January 19, 2018 and February 9, 2018, we sold an additional $1,898 and $1,500 of the GECCM Notes upon partial exercise of the underwriters’ over-allotment option. As a result of the issuance of these additional GECCM Notes, the aggregate principal balance of GECCM Notes outstanding is $46.4 million.

The GECCM Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The GECCM Notes are effectively subordinated, or junior in right of payment, to any future secured indebtedness that we may incur and structurally subordinated to all future indebtedness and other obligations of our subsidiaries. We pay interest on the GECCM Notes on March 31, June 30, September 30 and December 31 of each year. The GECCM Notes will mature on January 31, 2025 and can be called on, or after, January 31, 2021. Holders of the GECCM Notes do not have the option to have the GECCM Notes repaid prior to the stated maturity date. The GECCM Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.

In October 2018, we purchased an additional $5,813 of par value of PFS Holdings Corp. first lien term loan at a price of approximately 60% of par value.

In October 2018, we purchased approximately $2,000 of par value of Viasat, Inc. receivable at a price of 85% of par value.

In November 2018, $1,256 of par value of Geo Specialty Chemicals, Inc. first lien term loan was paid down at 100% of par value.

In November 2018, we funded an additional $329 of par value to PR Wireless, Inc. first lien, delayed draw.

On October 22, 2018, based on the Form 4 filed by MAST Capital, a related party, with the Securities and Exchange Commission, MAST Capital executed a trade to sell 2,276,279 shares of GECC at $7.55 per share. After this transaction, MAST Capital has 2,711,874 shares of GECC representing approximately 25.5% of the outstanding shares.

Our Board declared the monthly distributions for the first quarter of 2019 at an annual rate of approximately 8.3% of our September 30, 2018 net asset value, which equates to $0.083 per month. All of the monthly distributions are from net investment income. The schedule of distribution payments will be established by GECC pursuant to authority granted by our Board.

On March 23, 2018, the Consolidated Appropriations Act of 2018, which includes the Small Business Credit Availability Act (the “Act”), was signed into law. The Act amends the Investment Company Act of 1940, as amended (the “Investment Company Act”) to permit a BDC to reduce the required minimum asset coverage ratio applicable to it from 200% to 150%, subject to certain requirements described therein. This reduction significantly increases the amount of debt that BDCs may incur.

Prior to the enactment of the Act, BDCs were required to maintain an asset coverage ratio of at least 200% in order to incur debt or to issue other senior securities. Generally, for every $1.00 of debt incurred or in senior securities issued, a BDC was required to have at least $2.00 of assets immediately following such incurrence or issuance. For those BDCs that satisfy the Act’s disclosure and approval requirements, the minimum asset coverage ratio is reduced such that for every $1.00 of debt incurred or in senior securities issued, a BDC must now have at least $1.50 of assets.

At our 2018 annual meeting of stockholders, which was held on May 3, 2018 (the “Annual Meeting”), a majority of our stockholders approved the application of the modified minimum asset coverage requirements set forth in Section 61(a)(2) of the Investment Company Act, to the Company. As a result of such approval, and subject to satisfying certain ongoing disclosure requirements, effective May 4, 2018 the asset coverage ratio test applicable to the Company was decreased from 200% to 150%, permitting us to incur additional leverage.

As of September 30, 2018, we had approximately $79 million of total outstanding indebtedness under two series of senior securities (unsecured senior notes)—the GECCL Notes and the GECCM Notes—and our asset coverage ratio was 258%. For risks associated with the reduction in our required minimum asset coverage ratio from 200% to 150%, see “Risk Factors—Risks Resulting from the Reduction in Required Minimum Asset Coverage Ratio.”

We are subject to financial market risks, including changes in interest rates. As of September 30, 2018, eight debt investments in our portfolio bore interest at a fixed rate, and the remaining 21 debt investments were at variable rates, representing approximately $82,619 and $107,681 in debt at fair value, respectively. The variable rates are based upon the London Interbank Offered Rate (“LIBOR”).

To illustrate the potential impact of a change in the underlying interest rate on our interest income, we have assumed a 1%, 2%, and 3% increase and 1%, 2%, and 3% decrease in the underlying LIBOR, and no other change in our portfolio as of September 30, 2018. We have also assumed that we have no outstanding floating rate borrowings. The below table illustrates the effect such assumed rate changes would have on an annual basis.

This analysis does not adjust for changes in the credit quality, size and composition of our portfolio, and other business developments that could affect the net increase in net assets resulting from operations. Accordingly, no assurance can be given that actual results would not differ materially from the results under this hypothetical analysis.

As of September 30, 2018, we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic filings with the Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we or GECM may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. The following items update the legal proceedings previously disclosed in our Form 10-K.

We are named as a defendant in a lawsuit captioned Intrepid Investments, LLC v. London Bay Capital, which is pending in the Delaware Court of Chancery. This lawsuit was brought by a member of Selling Source, LLC, one of our portfolio investments, against various members of and lenders to Selling Source. The plaintiff asserts claims of aiding and abetting, breaches of fiduciary duty, and tortious interference against us. As of September 30, 2018, we held $1.25 million in principal amount, or approximately 6%, of Selling Source’s outstanding senior bank debt. The lawsuit was filed on March 5, 2016 and the plaintiff immediately agreed to stay the action in light of an ongoing mediation among parties other than us. In June 2018, Intrepid sent notice to the court and defendants effectively lifting the stay and triggering defendants’ obligation to respond to the Intrepid complaint. In September 2018, we joined the other defendants in a motion to dismiss on various grounds. We intend to continue to monitor the matter and will assess the need to defend the matter further as necessary.

We were named in two related complaints, captioned Daniel Saunders, on behalf of himself and all others similarly situated, v. Full Circle Capital Corporation, et al., filed on September 23, 2016 (the “Saunders Action”), and William L. Russell, Jr., individually and on behalf of all others similarly situated, v. Biderman, et al., filed on September 12, 2016 and amended on September 22, 2016 (the “Russell Action”), in the United States District Court for the District of Maryland and in the Circuit Court for Baltimore City, (the “Circuit Court”), respectively. On October 7, 2016, a complaint captioned David Speiser, individually and on behalf of all others similarly situated v. Felton, et al., was filed in the Circuit Court (the “Speiser Action,” and together with the Russell Action, the “State Court Actions”) (the State Court Actions, together with the Saunders Action, the “Actions”).

On October 24, 2016, we, along with Full Circle, GECC, MAST Capital, certain directors of Full Circle and the plaintiffs in the Actions reached an agreement in principle providing for the settlement of the Actions on the terms and conditions set forth in a memorandum of understanding (the “MOU”). Pursuant to the terms of the MOU, without agreeing that any of the claims in the Actions have merit or that any supplemental disclosure was required under any applicable statute, rule, regulation or law, Full Circle and GECC agreed to and did make the supplemental disclosures with respect to the Merger. The MOU further provides that, among other things, (a) the parties to the MOU will enter into a definitive stipulation of settlement (the “Stipulation”) and will submit the Stipulation to the Circuit Court for review and approval; (b) the Stipulation will provide for dismissal of the Actions on the merits; (c) the Stipulation will include a general release of defendants of claims relating to the transactions contemplated by the merger agreement between GECC and Full Circle; and (d) the proposed settlement is conditioned on final approval by the Circuit Court after notice to Full Circle's stockholders. In March 2018, the Saunders Action was voluntarily dismissed by the plaintiff without prejudice. In August 2018, the State Court Actions were dismissed by the Circuit Court without prejudice for failure to prosecute.

In September 2018, we, the other lenders, and the lender trustee under PEAKS Trust 2009-11, were named as defendants in a claim brought by the chapter 7 trustee in the ITT Educational Services bankruptcy. Full Circle Capital Corporation (“Full Circle”), predecessor by merger to GECC, purchased via assignment a portion of the PEAKS Trust 2009-1 senior secured facility from Deutsche Bank Trust Company Americas in December 2016. The PEAKS Trust 2009-1 senior secured facility was supported by an underlying portfolio of student loans and guaranteed by ITT Educational Services, Inc. In September 2016, ITT and its affiliates filed for relief under chapter 7 of the bankruptcy code. Following the chapter 7 filing, a trustee was appointed who initiated a proceeding against certain Deutsche Bank entities and the investors in the PEAKS Trust, including Great Elm Capital Corporation, successor by merger to Full Circle. On November 2, 2018, the trustee filed a motion seeking to stay the litigation in order to facilitate settlement. We are continuing to monitor these proceedings.

In addition to the risk factors set forth below and the other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our Form 10-K, which could materially affect our business, financial condition and/or operating results.

Incurring additional indebtedness could increase the risk in investing in our Company. Pursuant to the Act, at the Annual Meeting our stockholders approved of the reduction of our required minimum asset coverage ratio from 200% to 150%, permitting us to incur additional leverage. The use of leverage magnifies the potential for gain or loss on amounts invested. The use of leverage is generally considered a speculative investment technique and increases the risks associated with investing in our securities. If we incur such additional leverage, you may experience increased risks of investing in our common stock.

As of September 30, 2018, we had approximately $79 million of total outstanding indebtedness under two series of senior securities (unsecured senior notes)—the GECCL Notes and the GECCM Notes—and our asset coverage ratio was 258%. Holders of our GECCL Notes and GECCM Notes have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and such holders may seek to recover against our assets in the event of a default.

If we are unable to meet the financial obligations under the GECCL Notes or the GECCM Notes, the holders of such indebtedness would have a superior claim to our assets over our common stockholders in the event of a default by us. If the value of our assets decreases, leveraging would cause our net asset value to decline more sharply than it otherwise would have had we not leveraged, thereby magnifying losses. Similarly, any decrease in our revenue or income will cause our net income to decline more sharply than it would have had we not borrowed. Such a decline would also negatively affect our ability to make distributions with respect to our common stock. Our ability to service any debt depends largely on our financial performance and is subject to prevailing economic conditions and competitive pressures. Moreover, as the base management fee payable to GECM, our investment adviser, is payable based on the average value of our total assets, including those assets acquired through the use of leverage, GECM will have a financial incentive to incur leverage, which may not be consistent with our stockholders’ interests. In addition, our common stockholders bear the burden of any increase in our fees or expenses as a result of our use of leverage, including interest expenses and any increase in the base management fee payable to GECM.

If our asset coverage ratio falls below the required limit, we will not be able to incur additional debt until we are able to comply with the asset coverage ratio applicable to us. This could have a material adverse effect on our operations, and we may not be able to make distributions to stockholders. The actual amount of leverage that we employ will depend on GECM’s and our Board’s assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.

Incurring additional leverage may magnify our exposure to risks associated with changes in interest rates, including fluctuations in interest rates which could adversely affect our profitability. If we incur additional leverage, general interest rate fluctuations may have a more significant negative impact on our investments and investment opportunities than they would have absent such additional incurrence, and, accordingly, may have a material adverse effect on our investment objectives and rate of return on investment capital. A portion of our income will depend upon the difference between the rate at which we borrow funds and the interest rate on the debt securities in which we invest. Because we may borrow money to make investments and may issue debt securities, preferred stock or other securities, our net investment income is dependent upon the difference between the rate at which we borrow funds or pay interest or dividends on such debt securities, preferred stock or other securities and the rate at which we invest these borrowed funds.

We expect that a majority of our investments in debt will continue to be at floating rates with a floor. However, in the event that we make investments in debt at variable rates, a significant increase in market interest rates could also result in an increase in our non-performing assets and a decrease in the value of our portfolio because our floating-rate loan portfolio companies may be unable to meet higher payment obligations. In periods of rising interest rates, our cost of funds would increase, resulting in a decrease in our net investment income. Incurring additional leverage will magnify the impact of an increase to our cost of funds. In addition, a decrease in interest rates may reduce net income, because new investments may be made at lower rates despite the increased demand for our capital that the decrease in interest rates may produce. To the extent our additional borrowings are in fixed-rate instruments, we may be required to invest in higher-yield securities in order to cover our interest expense and maintain our current level of return to stockholders, which may increase the risk of an investment in our securities.

Unless otherwise indicated, all references are to exhibits to the applicable filing by Great Elm Capital Corp. (the “Registrant”) under File No. 814-01211 with the Securities and Exchange Commission.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	September 30, 2018 (unaudited)			December 31, 2017
Assets
Investments
Non-affiliated, non-controlled investments, at fair value (amortized cost of $141,980 and $179,558, respectively)	$	138,801		$	144,996
Non-affiliated, non-controlled short term investments, at fair value (amortized cost of $75,870 and $65,892, respectively)		75,862			65,890
Affiliated investments, at fair value (amortized cost of $87,890 and $4,240, respectively)		42,794			1,770
Controlled investments, at fair value (amortized cost of $21,985 and $18,487, respectively)		21,662			18,104
Total investments		279,119			230,760

Cash and cash equivalents		4,060			2,916
Receivable for investments sold		390			12
Interest receivable		3,620			5,027
Due from portfolio company		448			204
Due from affiliates		674			692
Prepaid expenses and other assets		172			302
Total assets	$	288,483		$	239,913

Liabilities
Notes payable 6.50% due September 18, 2022 (including unamortized discount of $1,215 and $1,435, respectively)	$	31,416		$	31,196
Notes payable 6.75% due January 31, 2025 (including unamortized discount of $1,756 and $0, respectively)		44,642			-
Payable for investments purchased		76,973			66,165
Interest payable		354			354
Distributions payable		884			3,015
Due to affiliates		5,584			6,193
Accrued expenses and other liabilities		833			703
Total liabilities	$	160,686		$	107,626

Commitments and contingencies (Note 6)	$	-		$	-

Net Assets
Common stock, par value $0.01 per share (100,000,000 shares authorized, 10,652,401 and 10,652,401shares issued and outstanding, respectively)	$	107		$	107
Additional paid-in capital		198,426			198,426
Accumulated net realized losses		(31,303	)		(33,328	)
Undistributed net investment income		9,171			4,499
Net unrealized depreciation on investments		(48,604	)		(37,417	)
Total net assets	$	127,797		$	132,287
Total liabilities and net assets	$	288,483		$	239,913
Net asset value per share	$	12.00		$	12.42

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
Investment Income:
Interest income from:
Non-affiliated, non-controlled investments	$	4,326		$	5,677		$	11,363		$	17,719
Non-affiliated, non-controlled investments (PIK)		-			-			-			-
Affiliated investments		(630	)		-			568			48
Affiliated investments (PIK)		1,671			-			6,238			-
Controlled investments		499			670			1,609			1,544
Controlled investments (PIK)		261			-			696			-
Total interest income		6,127			6,347			20,474			19,311
Dividend income from non-affiliated, non-controlled investments		23			108			178			239
Other income from:
Non-affiliated, non-controlled investments		10			11			52			468
Affiliated investments		-			-			90			-
Controlled investments		21			-			47			-
Total other income		31			11			189			468
Total investment income	$	6,181		$	6,466		$	20,841		$	20,018

Expenses:
Management fees	$	768		$	547		$	2,215		$	1,686
Incentive fees		576			890			(607	)		2,784
Administration fees		202			287			999			1,054
Custody fees		15			10			44			34
Directors’ fees		51			40			150			88
Professional services		325			212			791			719
Interest expense		1,457			717			4,188			1,979
Other expenses		101			193			432			462
Total expenses		3,495			2,896			8,212			8,806
Accrued administration fee waiver		-			-			-			70
Net expenses	$	3,495		$	2,896		$	8,212		$	8,876
Net investment income	$	2,686		$	3,570		$	12,629		$	11,142

Net realized and unrealized gains (losses) on investment transactions:
Net realized gain (loss) from:
Non-affiliated, non-controlled investments	$	898		$	59		$	1,815		$	3,420
Affiliated investments		-			-			-			-
Controlled investments		-			-			210			-
Total net realized gain (loss)		898			59			2,025			3,420
Net change in unrealized appreciation (depreciation) from:
Non-affiliated, non-controlled investments		(115	)		(13,921	)		(2,003	)		(19,911	)
Affiliated investments		620			230			(9,442	)		(1,790	)
Controlled investments		770			1,330			258			(681	)
Total net change in unrealized appreciation (depreciation)		1,275			(12,361	)		(11,187	)		(22,382	)
Net realized and unrealized gains (losses)	$	2,173		$	(12,302	)	$	(9,162	)	$	(18,962	)
Net increase (decrease) in net assets resulting from operations	$	4,859		$	(8,732	)	$	3,467		$	(7,820	)

Net investment income per share (basic and diluted):	$	0.25		$	0.32		$	1.19		$	0.93
Earnings per share (basic and diluted):	$	0.46		$	(0.77	)	$	0.33		$	(0.65	)
Weighted average shares outstanding (basic and diluted):		10,652,401			11,342,048			10,652,401			11,988,368

	For the Nine Months Ended September 30,
	2018			2017
Increase (decrease) in net assets resulting from operations:
Net investment income	$	12,629		$	11,142
Net realized gain (loss) on investments		2,025			3,420
Net change in unrealized appreciation (depreciation) on investments		(11,187	)		(22,382	)
Net increase (decrease) in net assets resulting from operations		3,467			(7,820	)

Distributions to stockholders from:
Net investment income		(7,957	)		(8,898	)
Total distributions to stockholders		(7,957	)		(8,898	)

Capital transactions:
Purchases of common stock		-			(23,461	)
Net increase (decrease) in net assets resulting from capital transactions		-			(23,461	)
Total increase (decrease) in net assets		(4,490	)		(40,179	)
Net assets at beginning of period	$	132,287		$	172,984
Net assets at end of period	$	127,797		$	132,805
Undistributed net investment income	$	9,171		$	3,579

Capital share activity
Shares outstanding at the beginning of the period		10,652,401			12,790,880
Shares purchased		-			(2,061,049	)
Shares outstanding at the end of the period		10,652,401			10,729,831

	For the Nine Months Ended September 30,
	2018			2017
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations	$	3,467		$	(7,820	)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities:
Purchases of investments		(131,824	)		(142,126	)
Increase (decrease) in payable for investments purchased		10,808			(8,964	)
Net change in short-term investments		(9,988	)		(52,269	)
Payment-in-kind income		(8,292	)		(4,588	)
Proceeds from sales of investments		81,235			53,244
(Increase) decrease in receivable for investments sold		(378	)		9,406
Proceeds from principal payments		13,554			81,968
Net realized (gain) loss on investments		(2,025	)		(3,420	)
Net change in unrealized (appreciation) depreciation on investments		11,187			22,382
Amortization of premium and accretion of discount, net		(2,206	)		(4,181	)
Amortization of discount (premium) on long term debt		414			(179	)
Increase (decrease) in operating assets and liabilities:
(Increase) decrease in principal receivable	-				786
(Increase) decrease in interest receivable		1,407			(1,049	)
(Increase) decrease in dividends receivable	-				(34	)
(Increase) decrease in deposit at broker	-				(211	)
(Increase) decrease in due from portfolio company		(244	)		128
(Increase) decrease in due from affiliates		18			(530	)
(Increase) decrease in prepaid expenses and other assets		130			(21	)
Increase (decrease) in interest payable		-			77
Increase (decrease) in due to affiliates		(609	)		1,203
Increase (decrease) in accrued expenses and other liabilities		130			(696	)
Net cash provided by (used for) operating activities		(33,216	)		(56,894	)
Cash flows from financing activities
Purchases of common stock		-			(23,461	)
Issuance of GECCL Notes payable		-			31,111
Issuance of GECCM Notes payable		44,448			-
Increase in offering costs payable		-			610
Distributions paid		(10,088	)		(10,130	)
Net cash provided by (used for) financing activities		34,360			(1,870	)
Net increase (decrease) in cash		1,144			(58,764	)
Cash, beginning of period		2,916			66,782
Cash, end of period	$	4,060		$	8,018

Supplemental disclosure of non-cash financing activities :
Dividends declared, not yet paid	$	884		$	891
Supplemental disclosure of cash flow information:
Cash paid for excise tax	$	120		$	-
Cash paid for interest	$	3,774		$	2,092

Portfolio Company	Security	Industry	Interest ⁽¹⁾	Maturity	Par Amount /Quantity		Cost		Fair Value		% of NAV
Investments at Fair Value - 218.41% of Net Assets(2)
Controlled Investments - 16.95% of Net Assets(3)

PE Facility Solutions, LLC	1st Lien, Senior Secured Revolver^(5),(15)	Building Cleaning and Maintenance Services	12.26% (L + 10.00%)⁽⁶⁾	02/27/2022		3,606	$	3,606	$	3,606		2.82	%
San Diego, CA	1st Lien, Senior Secured Revolver - Unfunded^(5),(15)		12.26% (L + 10.00%)⁽⁶⁾	02/27/2022		2,394		-		-		-	%
	1st Lien, Senior Secured Loan A^(5),(15)		13.26% (L + 11.00%)⁽⁶⁾	02/27/2022		9,900		9,900		9,900		7.75	%
	1st Lien, Senior Secured Loan B^(5),(15)		16.26% (L + 14.00%)^(6),(7)	02/27/2022		6,428		6,168		6,428		5.03	%
	Common Equity^(5),(8),(15)					1		-		-		-	%
								19,674		19,934		15.60	%

The Finance Company	1st Lien, Senior Secured Revolver⁽⁵⁾	Consumer Finance	13.26% (L + 11.00%, 11.50% Floor)⁽⁶⁾	07/02/2020		820		820		820		0.64	%
Silver Springs, MD	1st Lien, Senior Secured Unfunded Loan⁽⁵⁾		13.26% (L + 11.00%, 11.50% Floor)⁽⁶⁾	07/02/2020		180		-		-		-	%
	2nd Lien Secured Term Loan B^(5),(30)		13.26% (L + 11.00%, 11.50% Floor)⁽⁶⁾	07/02/2020		1,491		1,491		908		0.71	%
	Equity^(5),(8),(30)					288,000		-		-		-	%
								2,311		1,728		1.35	%
Total Controlled Investments								21,985		21,662		16.95	%

Affiliate Investments - 33.49% of Net Assets(4)

Avanti Communications Group PLC	2nd Lien, Senior Secured Bond^{(5),(10),(11)}	Wireless Telecommunications Services	9.00%	10/01/2022		37,126		32,990		29,719		23.25	%
London, UK	Common Equity^(8),(10)					196,086		50,660		13,041		10.20	%
								83,650		42,760		33.46	%

OPS Acquisitions Limited and Ocean Protection Services Limited	1st Lien, Senior Secured Loan^{(5),(10),(16)}	Maritime Security Services	14.26% (L + 12.00%, 12.50% Floor)^(6),(9)	06/01/2018		4,903		4,240		34		0.03	%
London, UK	Common Equity^{(5),(8),(10),(16)}					19		-		-		-	%
								4,240		34		0.03	%
Total Affiliate Investments								87,890		42,794		33.49	%

Portfolio Company	Security	Industry	Interest (1)	Maturity	Par Amount /Quantity		Cost		Fair Value			% of NAV
Non-Affiliated, Non-Controlled Investments - 108.61% of Net Assets

Almonde, Inc.	2nd Lien, Senior Secured Loan^(10),(17)	Software Services	9.65% (L + 7.25%, 8.25% floor)⁽¹³⁾	06/13/2025		5,000		4,973		4,947			3.87	%
Philadelphia, PA

Aptean Holdings, Inc.	2nd Lien, Senior Secured Loan^(5),(29)	Software Services	11.90% (L + 9.50%, 10.50% Floor)⁽¹³⁾	12/20/2023		4,010		4,053		4,010			3.14	%
Alpharetta, GA

Best Western Luling (fka Luling Lodging, LLC)	1st Lien, Senior Secured Loan^(5),(16)	Hotel Operator	19.26% (L + 12.00%, 12.25% Floor)^(6),(9),(12)	12/18/2017		2,715		1,300		2,751			2.15	%
Luling, TX

California Pizza Kitchen	1st Lien, Senior Secured Loan^(5),(31)	Food Products	8.40% (L + 6.00%, 7.00% Floor)⁽¹³⁾	08/23/22		1,995		1,949		1,979			1.55	%
Playa Vista, CA

Commercial Barge Line Company	1st Lien, Senior Secured Loan⁽¹⁸⁾	Water Transport	11.01% (L + 8.75%, 9.75% Floor)⁽⁶⁾	11/12/2020		13,845		11,330		10,618			8.31	%
Jeffersonville, IN

Davidzon Radio, Inc.	1st Lien, Senior Secured Loan^(5),(16)	Radio Broadcasting	15.26% (L + 10.00%, 11.00% Floor)^(6),(12)	03/31/2020		9,372		9,008		8,847			6.92	%
Brooklyn, NY

Full House Resorts, Inc.	1st Lien Senior Secured Note^(5),(25)	Gaming, Lodging & Restaurants	9.40% (L + 7.00%, 8.00% floor)⁽¹³⁾	02/02/2024		9,925		9,744		9,841			7.70	%
Las Vegas, NV

Geo Specialty Chemicals, Inc.	1st Lien, Senior Secured Revolver^(5),(19⁾	Chemicals	7.15% (L + 4.75%, 5.75% Floor)⁽¹³⁾	04/30/2019		3,938		3,844		3,904			3.05	%
Lafayette, Indiana	1st Lien, Senior Secured Revolver - Unfunded^(5),(19)		7.15% (L + 4.75%, 5.75% Floor)⁽¹³⁾	04/30/2019		438		-		(4	)		-	%
	1st Lien, Senior Secured Loan^(5),(19)		7.15% (L + 4.75%, 5.75% Floor)⁽¹³⁾	04/30/2019		5,578		5,459		5,531			4.33	%
								9,303		9,431			7.38	%

International Wire Group Inc	2nd Lien, Senior Secured Bond⁽¹¹⁾	Manufacturing	10.75%	08/01/2021		17,500		16,545		17,281			13.52	%
Camden, NY

Michael Baker International, LLC	2nd Lien, Senior Secured Bond⁽¹¹⁾	Industrial Conglomerates	8.75%	03/01/2023		14,500		14,064		14,536			11.37	%
Pittsburgh, PA

Portfolio Company	Security	Industry	Interest (1)	Maturity	Par Amount /Quantity		Cost		Fair Value			% of NAV
PEAKS Trust 2009-1	1st Lien, Senior Secured Loan^(5),(10^),(16)	Consumer Finance	7.76% (L + 5.50%, 7.50% Floor)⁽⁶⁾	01/27/2020		1,197		948		618			0.48	%
Carmel, IN

PFS Holdings Corp.	1st Lien, Senior Secured Loan^(5),(32)	Food & Staples Retailing	5.76% (L + 3.50%, 4.50% Floor)⁽⁶⁾	01/31/2021		9,205		5,682		5,569			4.36	%
Easton, PA

PR Wireless, Inc.	1st Lien, Senior Secured Delayed Draw Loan^(5),(20)	Wireless Communications	7.65% (L + 5.25%)⁽¹³⁾	06/29/2020		274		274		275			0.22	%
Guaynabo, PR	1st Lien, Senior Secured Unfunded Delayed Draw Loan^(5),(20)		7.65% (L + 5.25%)⁽¹³⁾	06/29/2020		1,098		-		(3	)		-	%
								274		272			0.21	%

SESAC Holdco II LLC	2nd Lien, Senior Secured Loan^(5),(21)	Business Services	9.51% (L + 7.25%, 8.25% Floor)⁽⁶⁾	02/24/2025		9,942		9,873		9,918			7.76	%
Nashville, TN

Speedwell Holdings (fka The Selling Source, LLC)	1st Lien, Senior Secured Loan⁽⁵⁾	Information and Data Services	7.40% (L + 5.00%)⁽¹³⁾	01/13/2020		1,250		1,069		1,250			0.98	%
Las Vegas, NV

Sungard Availability Services Capital, Inc.	1st Lien, Senior Secured Loan⁽²²⁾	Technology Services	12.26% (L + 10.00%, 11.00% Floor)⁽⁶⁾	10/01/2022		11,380		11,049		11,152			8.73	%
Wayne, PA	1st Lien, Senior Secured Loan^(5),(24)		9.26% (L + 7.00%, 8.00% Floor)⁽⁶⁾	9/30/2021		4,900		4,588		4,586			3.59	%
								15,637		15,738			12.31	%

Tallage Davis, LLC	1st Lien, Senior Secured Loan^(5),(26)	Real Estate Services	11.00%	01/26/2023		2,700		2,700		2,685			2.10	%
Boston, MA	1st Lien, Senior Secured Loan - Unfunded^(5),(26)		11.00%	01/26/2023		11,000		-		(61	)		(0.05	)%
								2,700		2,624			2.05	%

Tallage Lincoln, LLC	1st Lien, Senior Secured Loan^(5),(16)	Real Estate Services	12.40% (L + 10.00%, 11.00% Floor)⁽¹³⁾	12/31/2019		2,998		2,998		2,976			2.33	%
Boston, MA	1st Lien, Senior Secured Loan - Unfunded^(5),(16)		12.40% (L + 10.00%, 11.00% Floor)⁽¹³⁾	12/31/2019		2,250		-		(17	)		(0.01	)%
								2,998		2,959			2.32	%

Tru Taj, LLC	1st Lien, Senior Secured Bond⁽¹¹⁾	Retail	12.00%	08/15/2021		16,000		15,389		10,400			8.14	%
Wayne, NJ	1st Lien, Debtor in Possession Note^(5),(28)		11.00%	01/22/2019		4,992		5,141		5,212			4.08	%
								20,530		15,612			12.22	%

Total Non-Affiliated, Non-Controlled Investments								141,980		138,801			108.61	%

Portfolio Company	Security	Industry	Interest (1)	Maturity	Par Amount /Quantity		Cost		Fair Value			% of NAV
Short-Term Investments - 59.36% of Net Assets

State Street Institutional Treasury Money Market Fund	Premier Class					1,252,287		1,252		1,252			0.98	%

United States Treasury	Treasury Bill		0%	12/27/18		75,000		74,618		74,610			58.38	%

Total Short-Term Investments								75,870		75,862			59.36	%

TOTAL INVESTMENTS(14) – 218.41% of Net Assets							$	327,725	$	279,119			218.41	%

Other Liabilities in Excess of Assets - (118.41)% of Net Assets									$	(151,322	)		(118.41	)%

NET ASSETS									$	127,797			100.00	%

As of September 30, 2018, the Company’s investments consisted of the following:

As of September 30, 2018, the industry composition of the Company’s portfolio, excluding short-term investments, at fair value was as follows:

Industry	Investments at Fair Value		Percentage of Net Assets
Food Products	$	1,979		1.55	%
Food & Staples Retailing		5,569		4.36	%
Building Cleaning and Maintenance Services		19,934		15.60	%
Business Services		9,918		7.76	%
Chemicals		9,431		7.38	%
Consumer Finance		2,346		1.84	%
Gaming, Lodging & Restaurants		9,841		7.70	%
Hotel Operator		2,751		2.15	%
Industrial Conglomerates		14,536		11.37	%
Information and Data Services		1,250		0.98	%
Manufacturing		17,281		13.52	%
Maritime Security Services		34		0.03	%
Radio Broadcasting		8,847		6.92	%
Real Estate Services		5,583		4.37	%
Retail		15,612		12.22	%
Software Services		8,957		7.01	%
Technology Services		15,738		12.31	%
Water Transport		10,618		8.31	%
Wireless Communications		272		0.21	%
Wireless Telecommunications Services		42,760		33.46	%
Short-Term Investments		75,862		59.36	%
Total	$	279,119		218.41	%

As of September 30, 2018, the geographic composition of the Company’s portfolio at fair value was as follows:

Portfolio Company	Security	Industry	Interest⁽²⁾	Maturity	Par Amount /Quantity		Cost		Fair Value		% of NAV
Investments at Fair Value - 174.43% of Net Assets⁽¹⁾
Controlled Investments - 13.68% of Net Assets⁽³⁾

PE Facility Solutions, LLC	1st Lien, Senior Secured Revolver^(5),(15)	Building Cleaning and Maintenance Services	11.38%(L + 10.00%)⁽⁶⁾	02/27/2022		-	$	-	$	-		-
San Diego, CA	1st Lien, Senior Secured Revolver - Unfunded^(5),(15)		11.38%(L + 10.00%)⁽⁶⁾	02/27/2022		3,000		-		-		-
	1st Lien, Senior Secured Loan A^(5),(15)		12.38%(L + 11.00%)⁽⁶⁾	02/27/2022		9,900		9,900		9,900		7.48	%
	1st Lien, Senior Secured Loan B^(5),(15)		15.38%(L + 14.00%)^(6),(7)	02/27/2022		9,105		8,587		8,204		6.20	%
	Common Equity^(5),(8),(15)					1		-		-		-
								18,487		18,104		13.68	%
Total Controlled Investments								18,487		18,104		13.68	%

Affiliate Investments - 1.34% of Net Assets⁽⁴⁾

OPS Acquisitions Limited and Ocean Protection Services Limited	1st Lien, Senior Secured Loan^{(5),(10),(16)}	Maritime Security Services	16.38%(L + 12.00%, 12.50% Floor)^(6),(7),(9)	06/01/2018		4,903		4,240		1,770		1.34	%
London, UK	Common Equity^{(5),(8),(10),(16)}					19		-		-		-
								4,240		1,770		1.34	%
Total Affiliate Investments								4,240		1,770		1.34	%

Non-Affiliated, Non-Controlled Investments - 109.60% of Net Assets

Almonde, Inc.	2nd Lien, Senior Secured Loan^{(5),(10),(17)}	Software Services	8.94%(L + 7.25%, 8.25% floor)(13)	06/13/2025		5,000		5,037		5,005		3.78	%
Philadelphia, PA

Avanti Communications Group PLC	2nd Lien, Senior Secured Bond^(10),(11)	Wireless Telecommunications Services	12.50%	10/01/2021		34,917		30,427		28,807		21.78	%
London, UK	3rd Lien, Senior Secured Bond^(10),(11)		14.50%(20.00% if PIK election is made)⁽⁷⁾	10/01/2023		54,113		45,011		13,257		10.02	%
	Common Equity^(8),(10)					1,829,496		23		213		0.16	%
								75,461		42,277		31.96	%

Commercial Barge Line Company	1st Lien, Senior Secured Loan⁽⁵⁾^,(18)	Water Transport	10.32%(L + 8.75%, 9.75% Floor)⁽⁶⁾	11/12/2020		9,254		7,551		5,279		3.99	%
Jeffersonville, IN

Portfolio Company	Security	Industry	Interest⁽²⁾	Maturity	Par Amount /Quantity		Cost			Fair Value			% of NAV
Davidzon Radio, Inc.	1st Lien, Senior Secured Loan^(5),(16)	Radio Broadcasting	14.38%(L + 10.00%, 11.00% Floor)^(6),(14)	03/31/2020		9,685		9,144			8,876			6.71	%
Brooklyn, NY

Geo Specialty Chemicals, Inc.	1st Lien, Senior Secured Revolver^(5),(19)	Chemicals	6.28%(L + 4.75%, 5.75% Floor)⁽⁶⁾	04/30/2019		3,646		3,465			3,500			2.64	%
Lafayette, Indiana	1st Lien, Senior Secured Revolver - Unfunded^(5),(19)		6.28%(L + 4.75%, 5.75% Floor)⁽⁶⁾	04/30/2019		729		(29	)		(29	)		(0.02	%)
	1st Lien, Senior Secured Loan^(5),(19)		6.28%(L + 4.75%, 5.75% Floor)⁽⁶⁾	04/30/2019		6,563		6,248			6,300			4.76	%
								9,684			9,771			7.38	%

International Wire Group Inc	2nd Lien, Senior Secured Bond⁽¹¹⁾	Manufacturing	10.75%	08/01/2021		13,000		12,071			11,960			9.04	%
Camden, NY

Luling Lodging, LLC	1st Lien, Senior Secured Loan^(5),(16)	Hotel Operator	18.38%(L + 12.00%,12.25% Floor)^(6),(9),(12)	12/18/2017		2,715		1,300			1,605			1.21	%
Luling, TX

Michael Baker International, LLC	2nd Lien, Senior Secured Bond⁽¹¹⁾	Industrial Conglomerates	8.75%	03/01/2023		5,000		4,876			4,838			3.66	%
Pittsburgh, PA

NANA Development Corp.	1st Lien, Senior Secured Bond⁽¹¹⁾	Industrial Other	9.50%	03/15/2019		7,000		6,902			7,070			5.34	%
Anchorage, AK

PEAKS Trust 2009-1	1st Lien, Senior Secured Loan^{(5),(10),(16)}	Consumer Finance	7.50%(L + 5.50%, 7.50% Floor)⁽⁶⁾	01/27/2020		1,462		1,020			878			0.67	%
Carmel, IN

PR Wireless, Inc.	1st Lien, Senior Secured Loan^(5),(16)	Wireless Communications	6.94%(L + 5.25%)⁽¹³⁾	06/29/2020		9,754		8,908			9,749			7.37	%
Guaynabo, PR	1st Lien, Senior Secured Delayed Draw Loan^(5),(20)		8.75%(Prime Rate + 4.25%)⁽¹³⁾	06/29/2020		274		274			274			0.21	%
	1st Lien, Senior Secured Unfunded Delayed Draw Loan^(5),(20)		8.75%(Prime Rate + 4.25%)⁽¹³⁾	06/29/2020		1,098		-			-
								9,182			10,023			7.58	%
RiceBran Technologies Corporation	Warrants^(5),(8),(16)	Grain Mill Products	$1.60 Strike Price	05/12/2020		300,000		145			136			0.10	%
Scottsdale, AZ

Portfolio Company	Security	Industry	Interest⁽²⁾	Maturity	Par Amount /Quantity		Cost		Fair Value			% of NAV
SESAC Holdco II LLC	2nd Lien, Senior Secured Loan^(5),(21)	Business Services	8.94%(L+7.25%)⁽¹³⁾	02/24/2025		4,150		4,103		4,156			3.14	%
Nashville, TN

Sungard Availability Services Capital, Inc.	1st Lien, Senior Secured Loan^(5),(22)	Technology Services	11.69%(L+10.00%)⁽¹³⁾	10/01/2022		6,000		5,700		5,952			4.50	%
Wayne, PA

Tallage Lincoln, LLC.	1st Lien, Senior Secured Loan^(5),(16)	Real Estate Services	11.69%(L + 10.00%, 11.00% Floor)⁽¹³⁾	12/31/2019		5,723		5,725		5,718			4.32	%
Boston, MA	1st Lien, Senior Secured Loan - Unfunded^(5),(16)		11.69%(L + 10.00%, 11.00% Floor)⁽¹³⁾	12/31/2019		2,250		-		-			-
								5,725		5,718			4.32	%

The Finance Company	1st Lien, Senior Secured Loan^(5),(16)	Consumer Finance	17.88%(L + 13.50%, 14.00% Floor)^(6),(12)	03/31/2018		2,191		2,191		1,993			1.51	%
Silver Springs, MD	1st Lien, Senior Secured Unfunded Loan^(5),(16)		17.88%(L + 13.50%, 14.00% Floor)^(6),(12)	03/31/2018		709		-		-			-
								2,191		1,993			1.51	%

The Selling Source, LLC	1st Lien, Senior Secured Loan^{(5),(16),(23)}	Information and Data Services	17.00%(9.00% PIK),( 8.00% Cash)^(7),(9)	12/31/2017		5,689		4,202		4,659			3.52	%
Las Vegas, NV

Tru Taj, LLC	1st Lien, Senior Secured Bond⁽¹¹⁾	Retail	12.00%	08/15/2021		16,000		15,264		14,800			11.19	%
Wayne, NJ

Total Non-Affiliated, Non-Controlled Investments								179,558		144,996			109.60	%

Short-Term Investments - 49.81% of Net Assets

State Street Institutional Treasury Money Market Fund	Money Market Mutual Fund					16,052,817		16,053		16,053			12.13	%

United States Treasury	Treasury Bill			3/29/2018		50,000		49,839		49,837			37.67	%

Total Short-Term Investments								65,892		65,890			49.80	%

TOTAL INVESTMENTS⁽¹⁴⁾– 174.43% of Net Assets							$	268,177	$	230,760			174.43	%

Other Liabilities in Excess of Assets - (74.43)% of Net Assets									$	(98,473	)		(74.43	%)

NET ASSETS									$	132,287			100.00	%

As of December 31, 2017 the industry composition of the Company’s portfolio at fair value was as follows:

As of December 31, 2017 the geographic composition of the Company’s portfolio at fair value was as follows:

Great Elm Capital Corp. (the “Company”) was formed on April 22, 2016 as a Maryland corporation. The Company is structured as an externally managed, non-diversified closed-end management investment company. The Company elected to be regulated as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). The Company is managed by Great Elm Capital Management, Inc., a Delaware corporation (“GECM”), a subsidiary of Great Elm Capital Group, Inc., a Delaware corporation (“Great Elm Capital Group”).

The Company seeks to generate current income and capital appreciation through debt and equity investments. The Company invests primarily in secured and senior unsecured debt instruments that it purchases in the secondary markets.

The Company and Full Circle Capital Corporation, a Maryland corporation (“Full Circle”), entered into an Agreement and Plan of Merger, dated as of June 23, 2016 (the “Merger Agreement”). The Merger Agreement provided for the merger of Full Circle with and into the Company (the “Merger”). The Company agreed to provide indemnity to Full Circle’s directors and officers under certain circumstances. The Company has concluded that its indemnification obligation is remote as of the date of the accompanying financial statements. The Merger was completed on November 3, 2016 and the Company began operations on November 4, 2016. The Company accounted for the Merger as a business combination under Accounting Standards Codification (ASC) Topic 805, Business Combinations (“ASC 805”). The consideration for the Merger consisted of 4,986,585 shares of common stock, par value $0.01 per share, of the Company (the “Common Stock”).

Basis of Presentation. The Company’s functional currency is U.S. dollars and these consolidated financial statements have been prepared in that currency. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to Regulation S-X and Regulation S-K. The Company is an investment company following accounting and reporting guidance in Accounting Standards Codification Topic 946, Financial Services – Investment Companies.

Basis of Consolidation. Under the Investment Company Act, Article 6 of Regulation S-X and the American Institute of Certified Public Accountants’ Audit and Accounting Guide for Investment Companies, the Company is generally precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services and benefits to the Company. The accompanying consolidated financial statements include the Company’s accounts and the accounts of the Company’s wholly-owned, or previously wholly-owned, subsidiaries, TFC-SC Holdings, LLC, PE Facility Solutions, LLC and Double Deuce Lodging, LLC. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.

Revenue Recognition. Interest and dividend income, including income paid in kind, is recorded on an accrual basis. Origination, structuring, closing, commitment and other upfront fees, including original issue discounts, earned with respect to capital commitments, are generally amortized or accreted into interest income over the life of the respective debt investment, as are end-of-term or exit fees receivable upon repayment of a debt investment if such fees are fixed in nature. The Company currently has no investments with fixed exit fees. Other fees, including certain amendment fees, prepayment fees and commitment fees on broken deals, and end-of-term or exit fees that have a contingency feature or are variable in nature are recognized as earned. Prepayment fees and similar income due upon the early repayment of a loan or debt security are generally included in interest income.

Interest Income received as payment-in-kind (“PIK”) is reported separately in the Statements of Operations. Income is included as PIK if the instrument solely provides for settlement in kind. In the event that the borrower can settle in kind or via cash payment, the income is not included as PIK until the borrower elects to pay in kind and the payment is received by the Company. In the event there is a lesser cash rate in a PIK toggle instrument, income is accrued at the lesser cash rate until the coupon is paid in kind and such larger payment is received by the Company.

Certain of the Company’s debt investments were purchased at a discount to par as a result of the underlying credit risks and financial results of the issuer, as well as general market factors that influence the financial markets as a whole. Discounts on the acquisition of corporate debt instruments are generally amortized using the effective-interest or constant-yield method assuming there are no material questions as to collectability. For debt instruments where the Company received original issue discounts, when principal payments on the debt instrument are received in an amount in excess of the debt instrument’s amortized cost, the excess principal payments are recorded as interest income.

Net Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation). The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale of an investment and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Realized gains and losses are computed using the first-in, first-out method. Net change in unrealized appreciation or depreciation reflects the net change in portfolio investment values and portfolio investment cost bases during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Organization and Merger Related Costs. Organization and Merger-related costs, including costs relating to the formation and incorporation of the business, were deemed to be incurred by the Company only subsequent to the Merger being completed.

Cash and Cash Equivalents. Cash and cash equivalents typically consist of bank demand deposits.

Valuation of Portfolio Investments. The Company carries its investments in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations or alternative price sources. In the absence of quoted market prices, broker or dealer quotations or alternative price sources, investments are measured at fair value as determined by the Company’s board of directors (the “Board of Directors”).

Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. See Note 4.

The Company values its portfolio investments at fair value based upon the principles and methods of valuation set forth in policies adopted by the Board of Directors. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that (1) are independent of the Company, (2) are knowledgeable, having a reasonable understanding about the asset based on all available information (including information that might be obtained through due diligence efforts that are usual and customary), (3) are able to transact for the asset, and (4) are willing to transact for the asset (that is, they are motivated but not forced or otherwise compelled to do so).

Investments for which market quotations are readily available are valued at such market quotations unless the quotations are deemed not to represent fair value. The Company generally obtains market quotations from recognized exchanges, market quotation systems, independent pricing services or one or more broker-dealers or market makers. Short term debt investments with remaining maturities within ninety days are generally valued at amortized cost, which approximates fair value. Debt and equity securities for which market quotations are not readily available, which is the case for many of the Company’s investments, or for which market quotations are deemed not to represent fair value, are valued at fair value using a consistently applied valuation process in accordance with the Company’s documented valuation policy that has been reviewed and approved by the Board of Directors, who also approve in good faith the valuation of such securities as of the end of each quarter. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that the Company may ultimately realize. In addition, changes in the market environment and other events may have differing impacts on the market quotations used to value some of the Company’s investments than on the fair values of our investments for which market quotations are not readily available. Market quotations may be deemed not to represent fair value in certain circumstances where the Company believes that facts and circumstances applicable to an issuer, a seller or purchaser, or the market for a particular security cause current market quotations to not reflect the fair value of the security.

The valuation process approved by the Board of Directors with respect to investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value is as follows:

The Company’s audit committee recommends, and the Board of Directors approves, the fair value of the investments in the Company’s portfolio in good faith based on the input of GECM, the respective independent valuation firms (to the extent applicable) and the inputs of each of the audit committee of the Board of Directors and the Board of Directors.

Those investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in determining the fair value of its investments include, as relevant and among other factors: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, merger and acquisition comparables, and enterprise values.

Foreign Currency Translation. Amounts denominated in foreign currencies are translated into U.S. dollars on the following basis: (1) investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates effective on the date of valuation; and (2) purchases and sales of investments and income and expense items denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates prevailing on the transaction dates. The portion of gains and losses on foreign investments resulting from fluctuations in foreign currencies is included in net realized and unrealized gain or loss from investments.

U.S. Federal Income Taxes. From inception to September 30, 2016, the Company was a taxable association under Internal Revenue Code of 1986, as amended (the “Code”). The Company has elected to be taxed as a regulated investment company (“RIC”) under subchapter M of the Code beginning on October 1, 2016. The Company intends to operate in a manner so as to qualify for the tax treatment applicable to RICs in that taxable year and all future taxable years. In order to qualify as a RIC, among other things, the Company will be required to timely distribute to its stockholders at least 90% of investment company taxable income (“ICTI”) including PIK interest, as defined by the Code, 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 prior to the 15th day of the ninth month after the tax year-end. So long as the Company maintains its status as a RIC, it generally will not be subject to corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as distributions. Rather, any tax liability related to income earned by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company.

If the Company does not distribute (or is not deemed to have distributed) each calendar year the sum of (1) 98% of its net ordinary income for each calendar year, (2) 98.2% of its capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years (the “Minimum Distribution Amount”), the Company will generally be required to pay an excise tax equal to 4% of the amount by the which Minimum Distribution Amount exceeds the distributions for the year. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, the Company accrues excise taxes, if any, on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate. The annual effective excise tax rate is determined by dividing the estimated annual excise tax by the estimated annual taxable income.

The Company accrued $124 of excise tax expense in fiscal 2017 and has accrued $0 for fiscal 2018.

At December 31, 2017, the Company, for federal income tax purposes, had capital loss carryforwards of $46,984 which will reduce its taxable income arising from future net realized gains on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus will reduce the amount of distributions to shareholders, which would otherwise be necessary to relieve the Company of any liability for federal income tax. On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act changed the capital loss carryforward rules as they relate to regulated investment companies. Capital losses generated in tax years beginning after the date of enactment may now be carried forward indefinitely, and retain the character of the original loss. Of the capital loss carryforwards at December 31, 2017, $46,984 are limited losses and available for use subject to annual limitation under Section 382. Of the capital losses at December 31, 2017, $16,815 are short-term and $30,169 are long term.

ASC 740 Accounting for Uncertainty in Income Taxes (“ASC 740”) provides guidance on the accounting for and disclosure of uncertainty in tax position. 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 the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Based on its analysis of its tax position for all open tax years (the current and prior years, as applicable), the Company has concluded that it does not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740. Such open tax years remain subject to examination and adjustment by tax authorities.

In March 2017, FASB issued ASU No. 2017-08; Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization on Purchased Callable Debt Securities. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. The application of this guidance is not expected to have a material impact on the accompanying consolidated financial statements and related disclosures.

Fair Value Measurements In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, resulting in various disclosures related to fair value measurements being eliminated, modified or supplemented. ASU 2018-13 is effective for interim and annual periods beginning after December 15, 2019, with an option to early adopt any eliminated or modified disclosures, and to delay adoption of the additional disclosures, until the effective date. On September 1, 2018, the Company early adopted the eliminated and modified disclosures of ASU 2018-13 and, as a result, updated its financial statement disclosures accordingly. A modified narrative description of measurement uncertainty for level 3 fair value measurements was applied prospectively, with all other amendments applied retrospectively.

Investment Management Agreement. On September 27, 2016, the Company entered into an investment management agreement (the “Investment Management Agreement”) with GECM. Beginning on November 4, 2016, the Company began accruing for GECM’s fees for its services under the Investment Management Agreement. This fee consists of two components: a base management fee and an incentive fee.

Management Fee The base management fee is calculated at an annual rate of 1.50% of the Company’s average adjusted gross assets, including assets purchased with borrowed funds. The base management fee will be payable quarterly in arrears. The base management fee is calculated based on the average value of the Company’s gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the then current calendar quarter. Base management fees for any partial quarter are prorated.

For the three and nine months ended September 30, 2018 management fees amounted to $768 and $2,215, respectively. For the three and nine months ended September 30, 2017 management fees amounted to $547 and $1,686, respectively. As of September 30, 2018 and December 31, 2017, $768 and $612 remained payable, respectively.

Incentive Fee The incentive fee consists of two components, an investment income component and a capital gains component. Under the investment income component, on a quarterly basis, the Company will pay GECM 20% of the amount by which the Company’s pre-incentive fee net investment income (the “Pre-Incentive Fee Net Investment Income”) for the quarter exceeds a hurdle rate of 1.75% (7.0% annualized) of the Company’s net assets at the end of the immediately preceding calendar quarter, subject to a “catch-up” provision pursuant to which GECM receives all of such income in excess of the 1.75% level but less than 2.1875% (8.75% annualized) and subject to a total return requirement (described below). The effect of the “catch-up” provision is that, subject to the total return provision, if pre-incentive fee net investment income exceeds 2.1875% of the Company’s net assets at the end of the immediately preceding calendar quarter, in any calendar quarter, GECM will receive 20.0% of the Company’s pre-incentive fee net investment income as if the 1.75% hurdle rate did not apply. These calculations will be appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the then current quarter.

Pre-Incentive Fee Net Investment Income includes any accretion of original issue discount, market discount, payment-in-kind interest, payment-in-kind dividends or other types of deferred or accrued income, including in connection with zero coupon securities, that the Company and its consolidated subsidiaries have recognized in accordance with GAAP, but have not yet received in cash (collectively, “Accrued Unpaid Income”). Pre-Incentive Fee Net Investment Income does not include any realized capital gains or losses or unrealized capital appreciation or depreciation. Accrued Unpaid Income as of September 30, 2018 was $25,581. Accrued Unpaid Income includes PIK income of $8,292 capitalized during the nine months ended September 30, 2018 and $1,757 of accrued interest income that is expected to PIK. Accrued Unpaid Income as of December 31, 2017 was $20,168. Accrued Unpaid Income as of December 31, 2017 includes PIK income of $11,709 capitalized during the year ended December 31, 2017 and $1,962 of accrued interest income that is expected to PIK.

Any income incentive fee otherwise payable with respect to Accrued Unpaid Income (collectively, the “Accrued Unpaid Income Incentive Fees”) is deferred, on a security by security basis, and becomes payable only if, as, when and to the extent cash is received by the Company or its consolidated subsidiaries in respect thereof. Any Accrued Unpaid Income that is subsequently reversed in connection with a write-down, write-off, impairment or similar treatment of the investment giving rise to such Accrued Unpaid Income will, in the applicable period of reversal, (A) reduce Pre-Incentive Fee Net Investment Income and (B) reduce the amount of Accrued Unpaid Income Incentive Fees previously deferred.

Under the capital gains component of the incentive fee, the Company is obligated to pay GECM at the end of each calendar year 20% of the aggregate cumulative realized capital gains from November 4, 2016 through the end of that year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized depreciation through the end of such year, less the aggregate amount of any previously paid capital gains incentive fees.

Payment of the income incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of the Company’s pre-incentive fee net investment income will be payable except to the extent that 20% of the cumulative net increase in net assets resulting from operations from and after November 4, 2016 exceeds the cumulative incentive fees accrued and/or paid from and after November 4, 2016. For the purposes of this calculation, the “cumulative net increase in net assets resulting from operations” is the sum of the Company’s pre-incentive fee net investment income, realized losses and unrealized depreciation from and after November 4, 2016.

For the nine months ended September 30, 2018 and 2017, the Company incurred income incentive fees of $(607) and $2,784, respectively. For the nine months ended September 30, 2018, the income incentive fees incurred include an accrual of $2,328 offset by a reversal of $2,935 of income incentive fees previously accrued (discussed further below). As of September 30, 2018 and December 31, 2017, $4,650 and $5,257, respectively, remained payable and at both dates $0 was immediately payable after calculating the total return requirement. These payable amounts may include both Accrued Unpaid Income Incentive Fees and amounts deferred under the total return requirement and will become due upon meeting the criteria described above. For the nine months ended September 30, 2018 and the year ended December 31, 2017, the Company accrued Incentive Fees based on capital gains of $0.

GECC’s largest investment, Avanti Communications Group plc (Avanti), has generated significant non-cash income in the form of payment-in-kind (PIK) interest. In connection with the recent restructuring of Avanti completed on April 26, 2018, GECC’s investment in Avanti’s third lien notes was converted into Avanti common equity. As a result of this debt-for-equity conversion, we have determined that the accrued incentives fees payable associated with the portion of such PIK interest generated by the third lien notes should not at this time be recognized as a liability and as such we have reversed for prior periods. Notwithstanding this reversal, such incentives fees remain payable under the investment management agreement (subject to achievement of return hurdles) and will be recognized as expense to the extent that an exit or recovery results in gross proceeds to us in excess of our initial cost basis in the third lien notes.

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

The Company’s chief executive officer is also the chief investment officer of GECM, and the chief executive officer and a member of the board of directors of GEC. The Company’s chief compliance officer is also the chief operating officer, chief compliance officer and general counsel of GECM, and the president and chief operating officer of GEC. The Company’s chief financial officer is also the chief financial officer of GEC.

Administration Fees. On September 27, 2016, the Company entered into an administration agreement (the “Administration Agreement”) with GECM to provide administrative services, including furnishing the Company with office facilities, equipment, clerical, bookkeeping record keeping services and other administrative services. The Company will reimburse GECM for its allocable portion of overhead and other expenses of GECM in performing its obligations under the Administration Agreement.

GECM agreed that the aggregate amount of expenses accrued for reimbursement pursuant to the Administration Agreement that pertain to direct compensation costs of financial, compliance and accounting personnel that perform services for the Company, inclusive of the fees charged by any sub-administrator to provide such financial, compliance and/or accounting personnel to the Company (the “Compensation Expenses”), during the year ending November 4, 2017, when taken together with Compensation Expenses reimbursed or accrued for reimbursement by the Company pursuant to the Investment Management Agreement during such period, shall not exceed 0.50% of the Company’s average net asset value during such period. GECM’s expense cap was calculated retrospectively for the year ending November 4, 2017 and the cap on costs was determined to be $0 and $70 of the $80 accrued at December 31, 2016 was reversed for the year ended December 31, 2017 with $10 due from our sub-administrator remaining waived.

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

For the nine months ended September 30, 2018 and 2017, the Company incurred expenses under the Administration Agreement of $999 and $1,054, respectively. As of September 30, 2018 and December 31, 2017, $166 and $257 remained payable, respectively.

The fair value of a financial instrument is the amount that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price).

The fair value hierarchy under ASC 820 prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities. The three levels of the fair value hierarchy are as follows:

Level 1 - Investments valued using unadjusted quoted prices in active markets for identical assets.

Level 2 - Investments valued using other unadjusted observable market inputs, e.g. quoted prices in markets that are not active or quotes for comparable instruments.

Level 3 - Investments that are valued using quotes and other observable market data to the extent available, but which also take into consideration one or more unobservable inputs that are significant to the valuation taken as a whole.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Note 2 should be read in conjunction with the information outlined below.

The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 2 and Level 3 Instruments.

As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of September 30, 2018 and December 31, 2017 The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. Included in the consideration and selection of discount rates is risk of default, rating of the investment (if any), call provisions and comparable company valuations. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market multiples would result in an increase or decrease, respectively, in the fair value.

The following is a summary of the Company’s investment assets categorized within the fair value hierarchy as of September 30, 2018:

The following is a summary of the Company’s investment assets categorized within the fair value hierarchy as of December 31, 2017:

The following is a reconciliation of Level 3 assets for the nine months ended September 30, 2018:

The following is a reconciliation of Level 3 assets for the year ended December 31, 2017:

One security with a fair value of $28,807 was transferred into the Level 3 hierarchy and three securities with a fair value of $16,237 were transferred from Level 3 to Level 2 during the nine months ended September 30, 2018 as a result of changes in pricing transparency. There were no transfers into or out of Level 3 for the year ended December 31, 2017. Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur.

The following tables present the ranges of significant unobservable inputs used to value the Company’s Level 3 assets as of September 30, 2018 and December 31, 2017, respectively. These ranges represent the significant unobservable inputs that were used in the valuation of each type of instrument, but they do not represent a range of values for any one instrument. For example, the lowest yield in 1st Lien/Senior Secured is appropriate for valuing that specific debt investment, but may not be appropriate for valuing any other debt investments in this asset class. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the Company’s Level 3 assets.

On November 3, 2016, the Company assumed $33,646 of Full Circle 8.25% Senior Notes due 2020 (the “2020 Notes”) in connection with the Merger by executing the second supplemental indenture dated November 3, 2016. The 2020 Notes had a maturity date of June 30, 2020 and on October 20, 2017 we redeemed them completely at their par value plus accrued and unpaid interest.

On September 13, 2017, we offered $28,375 in aggregate principal amount of 6.50% notes due 2022 (the "GECCL Notes"). On September 29, 2017, we sold to several underwriters an additional $4,256 of the GECCL Notes upon full exercise of the underwriters’ over-allotment option.

On January 11, 2018, we offered $43,000 in aggregate principal amount of 6.75% notes due 2025 (the "GECCM Notes"). On January 19, 2018 and February 9, 2018, we sold an additional $1,898 and $1,500 of the GECCM Notes upon partial exercise of the underwriters’ over-allotment option.

As part of the offerings, the Company incurred fees and costs, which are treated as a reduction of the carrying amount of the debt on our Statements of Assets and Liabilities. These deferred financing costs presented as a reduction to the Notes payable balance are being amortized into interest expense over the term of the Notes.

The Investment Company Act limits, with certain exceptions, the Company’s borrowing such that its asset coverage ratio, as defined in the Investment Company Act, is at least 1.5 to 1 after such borrowing. As of September 30, 2018, the Company’s outstanding borrowings were $79,029, and the Company’s asset coverage ratio was 2.58 to 1.

Information about the Company’s senior securities (including debt securities and other indebtedness) is shown in the following table:

The indenture’s covenants, include compliance with (regardless of whether the Company is subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act, as well as covenants requiring the Company to provide financial information to the holders of the Notes and the Trustee if the Company ceases to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the Indenture. The Company may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder. As of September 30, 2018, the Company had not repurchased any of the Notes. As of September 30, 2018 and December 31, 2017 the Company was in compliance with all covenants under the indentures.

For the three and nine months ended September 30, 2018 and 2017, the components of interest expense were as follows:

The fair value of the Company’s Notes are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s Notes is determined by utilizing market quotations at the measurement date as they are Level 1 securities.

In the normal course of business, the Company may enter into investment agreements under which it commits to make an investment in a portfolio company at some future date or over a specified period of time. As of September 30, 2018, the Company had approximately $17,360 in unfunded loan commitments, subject to the Company’s approval in certain instances, to provide debt financing to certain of its portfolio companies. To the degree applicable, unrealized gains or losses on these commitments as of September 30, 2018 are included in the Company’s Statement of Assets and Liabilities and the corresponding Schedule of Investments. The Company believes that it had sufficient cash and other liquid assets on its balance sheet to satisfy the unfunded commitments.

From time to time, we, our investment adviser or administrator may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies.

We are named as a defendant in a lawsuit captioned Intrepid Investments, LLC v. London Bay Capital, which is pending in the Delaware Court of Chancery. This lawsuit was brought by a member of Selling Source, LLC, one of our portfolio investments, against various members of and lenders to Selling Source. The plaintiff asserts claims of aiding and abetting, breaches of fiduciary duty, and tortious interference against us. As of June 30 2018, we held $5.69 million in principal amount, or approximately 6%, of Selling Source’s outstanding senior bank debt. The lawsuit was filed on March 5, 2016 and the plaintiff immediately agreed to stay the action in light of an ongoing mediation among parties other than us. In June 2018, Intrepid sent notice to the court and defendants effectively lifting the stay and triggering defendants’ obligation to respond to the Intrepid complaint. In September 2018, we joined the other defendants in a motion to dismiss on various grounds. We intend to continue to monitor the matter and will assess the need to defend the matter further as necessary.

We were named in two related complaints, captioned Daniel Saunders, on behalf of himself and all others similarly situated, v. Full Circle Capital Corporation, et al, filed on September 23, 2016 (the “Saunders Action”), and William L. Russell, Jr., individually and on behalf of all others similarly situated, v. Biderman, et al. filed on September 12, 2016 and amended on September 22, 2016 (the “Russell Action”), in the United States District Court for the District of Maryland and in the Circuit Court for Baltimore City, (the “Circuit Court”), respectively. On October 7, 2016, a complaint captioned David Speiser, individually and on behalf of all others similarly situated v. Felton, et al., was filed in the Circuit Court (the “Speiser Action”, and together with the Russell Action, the “State Court Actions”) (the State Court Actions, together with the Saunders Action, the “Actions”).

Under the Company’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Company. In addition, in the normal course of business the Company expects to enter into contracts that contain a variety of representations which provide general indemnifications. The Company’s maximum exposure under these agreements cannot be known; however, the Company expects any risk of loss to be remote.

During the year ended December 31, 2017, the Company purchased 2,138,479 shares under its tender offer and $15,000 stock buyback program at a weighted average price of $11.20 per share. As of September 30, 2018, the Company had cumulatively purchased 2,236,651 shares under its tender offer and stock buyback program at a weighted average price of $11.18 per share, resulting in $15,000 of cumulative cash paid, under the program since November 4, 2016. Including the tender offer, the Company utilized $25,000 under its stock buyback and tender program for repurchasing shares.

Month	Total Number of Shares Purchased		Average Price Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Program		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (Amounts in dollars)
November 2016		16,030	$	10.79		16,030	$	14,826,985
December 2016		82,142	$	10.72		82,142		13,946,200
Total 2016		98,172	$	10.73		98,172

January 2017		132,434	$	11.48		132,434		12,425,611
February 2017		72,678	$	11.26		72,678		11,607,509
March 2017		40,617	$	11.09		40,617		11,157,069
April 2017		16,846	$	11.38		16,846		10,965,351
May 2017 ⁽¹⁾		944,535	$	11.44		944,535		10,158,722
June 2017		15,215	$	10.42		15,215		10,000,182
July 2017		47,961	$	10.73		47,961		9,485,725
August 2017		37,666	$	10.78		37,666		9,079,585
September 2017		753,097	$	11.00		753,097		792,735
October 2017		65,945	$	10.27		65,945		115,277
November 2017		11,485	$	10.04		11,485		-
Total 2017		2,138,479	$	11.20		2,138,479

Total		2,236,651	$	11.18		2,236,651	$	-

The following information sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2018 and September 30, 2017:

Diluted earnings per share equals basic earnings per share because there were no common stock equivalents outstanding during the periods presented.

Below is the schedule of financial highlights of the Company for the nine months ended September 30, 2018 and 2017, respectively:

	For the Nine Months Ended September 30,
	2018			2017
Per Share Data:⁽¹⁾
Net asset value, beginning of period	$	12.42		$	13.52
Net investment income		1.19			0.93
Net realized gains		0.19			0.29
Net change in unrealized appreciation (depreciation)		(1.05	)		(1.98	)
Net increase (decrease) in net assets resulting from operations		0.33			(0.76	)
Accretion from share buybacks		-			0.37
Distributions declared from net investment income⁽²⁾		(0.75	)		(0.75	)
Net decrease resulting from distributions to common stockholders		(0.75	)		(0.75	)
Net asset value, end of period	$	12.00		$	12.38
Per share market value, end of period	$	9.70		$	10.44

Shares outstanding, end of period		10,652,401			10,729,831
Total return based on net asset value⁽³⁾		2.85	%		(1.93	)%
Total return based on market value⁽³⁾		6.63	%		(4.22	)%

Ratio/Supplemental Data:
Net assets, end of period	$	127,797		$	132,805
Ratio of total expenses to average net assets before waiver^(4),(5)		8.56	%		7.42	%
Ratio of total expenses to average net assets after waiver^(4),(5)		8.56	%		7.48	%
Ratio of incentive fees to average net assets⁽⁴⁾		(0.63	)%		2.35	%
Ratio of net investment income to average net assets^(4),(5)		13.17	%		9.39	%
Portfolio turnover		48	%		91	%

Affiliated investment as defined by the Investment Company Act, whereby the Company owns between 5% and 25% of the portfolio company's outstanding voting securities and the investments are not classified as controlled investments. The aggregate fair value of non-controlled, affiliated investments at September 30, 2018 represented 33% of the Company's net assets.

Controlled investment as defined by the Investment Company Act, whereby the Company owns more than 25% of the portfolio company's outstanding voting securities or maintains the ability to nominate greater than 50% of the board representation. The aggregate fair value of controlled investments at September 30, 2018 represented 17% of the Company's net assets.

As a result of restructurings during the second quarter of 2018, Avanti Communications Group PLC became an affiliated investment and The Finance Company became a controlled investment. Both investments were previously considered to be non-affiliated, non-controlled investments.

Fair value as of September 30, 2018 along with transactions during the nine months ended September 30, 2018 in these affiliated investments and controlled investments was as follows:

	For the Nine Months Ended September 30, 2018
Issue⁽¹⁾	Fair value at December 31, 2017		Gross Additions⁽²⁾		Gross Reductions⁽³⁾		Net Realized Gain (Loss)		Change in Unrealized Appreciation (Depreciation)			Fair value at September 30, 2018		Interest Income⁽⁴⁾		Fee Income		Dividend Income
Non-Controlled, Affiliated Investments
OPS Acquisitions Limited and Ocean Protection Services Limited
Term Loan	$	1,770	$	-	$	-	$	-	$	(1,736	)	$	34	$	-	$	-	$	-
Equity (19% of class)		-		-		-		-		-			-		-		-		-
		1,770		-		-		-		(1,736	)		34		-		-		-

Avanti Communications Group PLC
Senior Secured Bond, 2nd Lien		28,807		2,563		-		-		(1,651	)		29,719		3,141		87		-
Senior Secured Bond, 3rd Lien		13,257		5,626		50,637		-		31,754			-		3,665		3		-
Equity (9% of class)		213		50,637		-		-		(37,809	)		13,041		-		-		-
		42,277		58,826		50,637		-		(7,706	)		42,760		6,806		90		-

Totals	$	44,047	$	58,826	$	50,637	$	-	$	(9,442	)	$	42,794	$	6,806	$	90	$	-

Controlled Investments
PE Facility Solutions, LLC
Revolver	$	-	$	49,429	$	45,823	$	-	$	-		$	3,606	$	170	$	34	$	-
Term Loan A		9,900		-		-		-		-			9,900		967		-		-
Term Loan B		8,204		778		3,407		210		643			6,428		895		-		-
Equity (88% of class)		-		-		-		-		-			-		-		-		-
		18,104		50,207		49,230		210		643			19,934		2,032		34		-

The Finance Company
Senior Secured Bond		1,993		-		2,191		-		198			-		181		1		-
Revolver		-		2,923		2,103		-		-			820		30		12		-
Term Loan B		-		1,491		-		-		(583	)		908		62		-		-
Equity (72% of class)		-		-		-		-		-			-		-		-		-
		1,993		4,414		4,294		-		(385	)		1,728		273		13		-

Totals	$	20,097	$	54,621	$	53,524	$	210	$	258		$	21,662	$	2,305	$	47	$	-

In accordance with SEC Regulation S-X Rules 3-09 and 4-08(g), the Company must determine which of its unconsolidated controlled portfolio companies, if any, are considered to be “significant subsidiaries.” After performing this analysis, the Company determined that one portfolio company, PE Facility Solutions, LLC (“PEFS”), is a significant subsidiary for the nine months ended September 30, 2018 under at least one of the significance conditions of Rule 4-08(g). Accordingly, unaudited financial information as of and for the nine months ended September 30, 2018 has been included as follows (in thousands):

In October 2018, we purchased an additional $5,813 of par value of PFS Holdings Corp. first lien term loan at a price of approximately 60% of par value.

In October 2018, we purchased $2,000 of par value of Viasat, Inc. receivable at a price of approximately 85% of par value.

In November 2018, $1,256 of par value of Geo Specialty Chemicals, Inc. first lien term loan was paid down at 100% of par value.

In November 2018, we funded an additional $329 of par value to PR Wireless, Inc. first lien, delayed draw.

Our Board declared the monthly distributions for the first quarter of 2019 at an annual rate of approximately 8.3% of our September 30, 2018 NAV, which equates to $0.083 per month. All of the monthly distributions are from net investment income. The schedule of distribution payments will be established by GECC pursuant to authority granted by the Board.

Maryland		81-2621577
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

800 South Street, Suite 230, Waltham, MA		02453
(Address of principal executive offices)		(Zip Code)

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	10
Item 4.	Controls and Procedures	11
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	11
Item 1A.	Risk Factors	12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.	Defaults Upon Senior Securities	13
Item 4.	Mine Safety Disclosures	13
Item 5.	Other Information	13
Item 6.	Exhibits	14
	Signatures	15
	Index to Consolidated Financial Statements	F-1
	Consolidated Statements of Assets and Liabilities (unaudited)	F-2
	Consolidated Statements of Operations (unaudited)	F-3
	Consolidated Statements of Changes in Net Assets (unaudited)	F-4
	Consolidated Statements of Cash Flows (unaudited)	F-5
	Consolidated Schedule of Investments	F-6
	Notes to the Unaudited Consolidated Financial Statements	F-17

	For the Nine Months Ended September 30, 2018			For the Year Ended December 31, 2017
Beginning Investment Portfolio	$	164,870		$	154,677
Portfolio Investments acquired⁽¹⁾		140,116			199,878
Amortization of premium and accretion of discount, net		2,206			5,627
Portfolio Investments repaid or sold⁽²⁾		(94,789	)		(174,983	)
Net change in unrealized appreciation (depreciation) on investments		(11,181	)		(23,962	)
Net realized gain (loss) on investments		2,035			3,633
Ending Investment Portfolio	$	203,257		$	164,870

(in thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Contractual Obligations
GECCL Notes	$	32,631	$	-	$	-	$	32,631	$	-
GECCM Notes		46,398		-		-		-		46,398
Total	$	79,029	$	-	$	-	$	32,631	$	46,398

LIBOR Increase (Decrease)			Increase (decrease) of Net Investment Income
	3.00	%	$	6,296
	2.00	%	$	4,197
	1.00	%	$	2,099
	(1.00	)%	$	(2,090	)
	(2.00	)%	$	(3,759	)
	(3.00	)%	$	(5,207	)

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

Exhibit Number		Description


2.1		Agreement and Plan of Merger, dated as of June 23, 2016, by and between Full Circle Capital Corporation and the Registrant (incorporated by reference to the Rule 425 filing (File No. 814-00809) on June 27, 2016)

2.2		Subscription Agreement, dated as of June 23, 2016, by and among the Registrant, Great Elm Capital Group, Inc. and the investment funds signatory thereto (incorporated by reference to the Rule 425 filing (File No. 814-00809) on June 27, 2016)

3.1		Amended and Restated Charter of the Registrant (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on November 7, 2016)

3.2		Bylaws of the Registrant (incorporated by reference to Exhibit 2 to the Registration Statement on Form N-14 (File No. 333-212817) filed on August 1, 2016)

4.1		Form of certificate for the Registrant’s common stock (incorporated by reference to Exhibit 5 to the Registration Statement on Form N-14 (File No. 333-212817) filed on August 1, 2016)

4.2		Indenture, dated as of September 18, 2017, by and between the Registrant and American Stock Transfer & Trust Company, LLC (the “Trustee”), as trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K/A filed on September 21, 2017)

4.3		First Supplemental Indenture, dated as of September 18, 2017, by and between the Registrant and the Trustee (incorporated by reference to Exhibit 4.2 to the Form 8-K/A filed on September 21, 2017)

4.4		Global Note, dated September 18, 2017 (incorporated by reference to Exhibit 4.3 to the Form 8-K filed on September 19, 2017, as amended September 21, 2017)

4.5		Global Note, dated September 29, 2017 (incorporated by reference to Exhibit 4.3 to the Form 8-K filed on September 29, 2017)

4.6		Second Supplemental Indenture, dated as of January 19, 2018, by and between the Registrant and the Trustee (incorporated by reference to Exhibit (d)(3) to the post-effective amendment to the Registration Statement on Form N-2 (File No. 333-221882) filed on January 19, 2018)

4.7		Global Note, dated January 19, 2018 (incorporated by reference to Exhibit (d)(1) to the post-effective amendment to the Registration Statement on Form N-2 (File No. 333-221882) filed on January 19, 2018)

31.1*		Certification of the Registrant’s Chief Executive Officer (“CEO”)

31.2*		Certification of the Registrant’s Chief Financial Officer (“CFO”)

32.1*		Certification of the Registrant’s CEO and CFO

	GREAT ELM CAPITAL CORP.

Date: November 13, 2018	By:	/s/ Peter A. Reed
	Name:	Peter A. Reed
	Title:	Chief Executive Officer

Date: November 13, 2018	By:	/s/ John J. Woods
	Name:	John J. Woods
	Title:	Chief Financial Officer

Consolidated Statements of Assets and Liabilities as of September 30, 2018 and December 31, 2017 (unaudited)		F-2
Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (unaudited)		F-3
Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2018 and 2017 (unaudited)		F-4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)		F-5
Consolidated Schedule of Investments as of September 30, 2018 and December 31, 2017 (unaudited)		F-6
Notes to the Unaudited Consolidated Financial Statements		F-17

Investment Type	Investments at Fair Value		Percentage of Net Assets
Fixed Income	$	190,216		148.84	%
Equity/Other		13,041		10.20	%
Short-Term Investments		75,862		59.36	%
Total	$	279,119		218.41	%

Geography	Investments at Fair Value		Percentage of Net Assets
United States	$	236,325		184.92	%
United Kingdom		42,794		33.49	%
Total	$	279,119		218.41	%

Assets	Level 1		Level 2		Level 3		Total
Fixed Income	$	-	$	68,934	$	121,282	$	190,216
Equity⁽¹⁾		13,041		-		-		13,041
Short Term Investments		75,862		-		-		75,862
Total investment assets	$	88,903	$	68,934	$	121,282	$	279,119

Level 3	Beginning Balance as of January 1, 2018		Net Transfers In/Out		Purchases⁽¹⁾		Net Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)⁽²⁾			Sales and Settlements⁽¹⁾			Net Amortization of Premium/ Discount		Ending Balance as of September 30, 2018
Fixed Income	$	83,789	$	12,570	$	100,749	$	1,755	$	(3,217	)	$	(75,564	)	$	1,200	$	121,282
Equity/Other		136		-		-		335		9			(480	)		-		-
Total investment assets	$	83,925	$	12,570	$	100,749	$	2,090	$	(3,208	)	$	(76,044	)	$	1,200	$	121,282

Level 3	Beginning Balance as of January 1, 2017		Transfers Out		Purchases⁽¹⁾		Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)⁽²⁾			Sales and Settlements⁽¹⁾			Net Amortization of Premium/ Discount		Ending Balance as of December 31, 2017
Fixed Income	$	83,979	$	-	$	139,859	$	2,053		$	(2,854	)	$	(142,824	)	$	3,576	$	83,789
Equity/Other		501		-		2,137		(321	)		17			(2,198	)		-		136
Total investment assets	$	84,480	$	-	$	141,996	$	1,732		$	(2,837	)	$	(145,022	)	$	3,576	$	83,925

Level 3 Instruments	Level 3 Assets as of December 31, 2017	Significant Unobservable Inputs by Valuation Techniques¹	Range²of Significant Unobservable Inputs (Weighted Average³) as of December 31, 2017
Bank Loans, Corporate Debt, and Other Debt Obligations	1st Lien/Senior Secured and Unsecured Debt	Discounted cash flows: ▪ Discount Rate Comparable multiples: ▪ EV/EBITDA⁴ Liquidation/Waterfall analysis: ▪ EV/EBITDA⁴	7.69% - 38.75% (11.30%) 4.25 – 13.75 (6.68)
Equity	Common Stock, LLC Units and Warrants on private stock	Liquidation Value	N/A
Equity	Warrants on publicly traded stock	Volatility	67.99%

Year	Total Amount Outstanding⁽¹⁾		Asset Coverage Ratio Per Unit⁽²⁾		Involuntary Liquidation Preference Per Unit⁽³⁾	Average Market Value Per Unit⁽⁴⁾
December 31, 2016
2020 Notes	$	33,646	$	6.17	N/A	$	1.02

December 31, 2017
GECCL Notes	$	32,631	$	5.01	N/A	$	1.02

September 30, 2018
GECCL Notes	$	32,631	$	2.58	N/A	$	1.03
GECCM Notes	$	46,398	$	2.58	N/A	$	1.00

	September 30, 2018
Facility	Commitments		Borrowings Outstanding		Fair Value
Unsecured Debt - GECCL Notes	$	32,631	$	32,631	$	33,512
Unsecured Debt - GECCM Notes		46,398		46,398		46,565
Total	$	79,029	$	79,029	$	80,077

Balance Sheet	As of September 30, 2018
Current assets	$	10,011
Noncurrent assets		11,536
Total Assets		21,547

Current liabilities		7,704
Noncurrent liabilities		20,885
Total Liabilities		28,589

Net Equity	$	(7,042	)

Statement of Operations	For the nine months ended September 30, 2018
Gross Revenues	$	45,254
Cost of Sales		(36,683	)
SG&A Expenses		(6,144	)
Net Loss from Continuing Operations	$	(1,349	)