PHENIXFIN CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

The following discussion and analysis should be read in conjunction with our
financial statements and related notes and other financial information appearing
elsewhere in this annual report on Form 10-K.

Except as otherwise specified, references to "we," "us," "our," or the "Company," refer to PhenixFIN Corporation.

Forward-Looking Statements



Some of the statements in this annual report on Form 10-K constitute
forward-looking statements, which relate to future events or our performance or
financial condition. The forward-looking statements contained in this annual
report on Form 10-K involve risks and uncertainties, including statements as to:

? the introduction, withdrawal, success and timing of business initiatives and

   strategies;

? changes in political, economic or industry conditions, the interest rate

environment or conditions affecting the financial and capital markets, which

could result in changes in the value of our assets;

? the impact of increased competition;

? the impact of future acquisitions and divestitures;

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

? the impact of legislative and regulatory actions and reforms and regulatory,

supervisory or enforcement actions of government agencies relating to us;

? our contractual arrangements and relationships with third parties;

? any future financings by us;

? fluctuations in foreign currency exchange rates;

? the impact of changes to tax legislation and, generally, our tax position;

? our ability to locate suitable investments for us and to monitor and administer

   our investments;

? our ability to attract and retain highly talented professionals;

? market conditions and our ability to access alternative debt markets and

additional debt and equity capital;

? the unfavorable resolution of legal proceedings;

? uncertainties associated with the impact from the COVID-19 pandemic: including

its impact on the global and U.S. capital markets and the global and U.S.

economy; the length and duration of the COVID-19 outbreak in the United States

as well as worldwide and the magnitude of the economic impact of that outbreak;

the effect of the COVID-19 pandemic on our business prospects and the

operational and financial performance of our portfolio companies, including our

and their ability to achieve their respective objectives; and the effect of the

disruptions caused by the COVID-19 pandemic on our ability to continue to

effectively manage our business; and

? risks and uncertainties relating to the possibility that the Company may

explore strategic alternatives, including, but are not limited to: the timing,

benefits and outcome of any exploration of strategic alternatives by the

Company; potential disruptions in the Company's business and stock price as a

result of our exploration of any strategic alternatives; the ability to realize

anticipated efficiencies, or strategic or financial benefits; potential

transaction costs and risks; and the risk that any exploration of strategic

alternatives may have an adverse effect on our existing business arrangements

or relationships, including our ability to retain or hire key personnel. There

is no assurance that any exploration of strategic alternatives will result in a

   transaction or other strategic change or outcome.




Such forward-looking statements may include statements preceded by, followed by
or that otherwise include the words "trend," "opportunity," "pipeline,"
"believe," "comfortable," "expect," "anticipate," "current," "intention,"
"estimate," "position," "assume," "potential," "outlook," "continue," "remain,"
"maintain," "sustain," "seek," "achieve," and similar expressions, or future or
conditional verbs such as "will," "would," "should," "could," "may," or similar
expressions. The forward looking statements contained in this annual report
involve risks and uncertainties. Our actual results could differ materially from
those implied or expressed in the forward-looking statements for any reason,
including the factors set forth as "Risk Factors" and elsewhere in this annual
report on Form 10-K.



                                       55





We have based the forward-looking statements included in this report on
information available to us on the date of this report, and we assume no
obligation to update any such forward-looking statements. Actual results could
differ materially from those anticipated in our forward-looking statements, and
future results could differ materially from historical performance. Although we
undertake no obligation to revise or update any forward-looking statements,
whether as a result of new information, future events or otherwise, you are
advised to consult any additional disclosures that we may make directly to you
or through reports that we have filed or in the future may file with the
Securities and Exchange Commission ("SEC"), including annual reports on Form
10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and
current reports on Form 8-K.



COVID-19 Developments



COVID-19 has severely impacted global economic activity and caused significant
volatility and negative pressure in financial markets. The global impact of
COVID-19 continues to evolve and many countries, including the United States,
have reacted at various stages of the pandemic by instituting quarantines,
restricting travel, and temporarily closing or limiting capacity at many
corporate offices, retail stores, restaurants, fitness clubs and manufacturing
facilities and factories in affected jurisdictions. Such actions have created
disruption in global supply chains and adversely impacted a number of
industries. The outbreak has had and could continue to have an adverse impact on
economic and market conditions and trigger a period of global economic slowdown.



We are closely monitoring the impact of the outbreak of COVID-19 on all aspects
of our business, including how it will impact our portfolio companies,
employees, due diligence and underwriting processes, and financial markets.
Given the continuing development and fluidity of this situation, we cannot
estimate the long-term impact of COVID-19 on our business, future results of
operations, financial position or cash flows at this time. Further, the
operational and financial performance of the portfolio companies in which we
make investments may be significantly impacted by COVID-19, which may in turn
impact the valuation of our investments. We believe our portfolio companies have
taken immediate actions to effectively and efficiently respond to the challenges
posed by COVID-19 and related orders imposed by state and local governments,
including developing liquidity plans supported by internal cash reserves,
shareholder support, and, as appropriate, accessing their ability to participate
in the government Paycheck Protection Program. The Company's performance was
negatively impacted during the pandemic. The longer-term impact of COVID-19 on
the operations and the performance of the Company (including certain portfolio
companies) is difficult to predict, but may also be adverse. The longer-term
potential impact on such operations and performance could depend to a large
extent on future developments and actions taken by authorities and other
entities to mitigate COVID-19 and its economic impact. The impacts, as well as
the uncertainty over impacts to come, of COVID-19 have adversely affected the
performance of the Company (including certain portfolio companies) and may
continue to do so in the future. Furthermore, the impacts of a potential
worsening of global economic conditions and the continued disruptions to and
volatility in the financial markets remain unknown. COVID-19 presents material
uncertainty and risks with respect to the underlying value of the Company's
portfolio companies, the Company's business, financial condition, results of
operations and cash flows, such as the potential negative impact to financing
arrangements, increased costs of operations, changes in law and/or regulation,
and uncertainty regarding government and regulatory policy.



We have evaluated subsequent events from September 30, 2021 through the filing
date of this annual report on Form 10-K. However, as the discussion in this Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations relates to the Company's financial statements for the quarterly
period ended June 30, 2021, the analysis contained herein may not fully account
for impacts relating to the COVID-19 pandemic. In that regard, for example, as
of September 30, 2021, the Company valued its portfolio investments in
conformity with U.S. generally accepted accounting principles ("GAAP") based on
the facts and circumstances known by the Company at that time, or reasonably
expected to be known at that time. Due to the overall volatility that the
COVID-19 pandemic may have caused during the months following our most recent
valuation (as of September 30, 2021), any valuations conducted now or in the
future in conformity with U.S. GAAP could result in a lower fair value of our
portfolio. The longer-term impact of COVID-19 on the operations and the
performance of the Company (including certain portfolio companies) is difficult
to predict, but may also be adverse. The longer-term potential impact on such
operations and performance could depend to a large extent on future developments
and actions taken by authorities and other entities to contain COVID-19 and its
economic impact. The impacts, as well as the uncertainty over impacts to come,
of COVID-19 (including the Delta variant) have adversely affected the
performance of the Company and may continue to do so in the future. Further, the
potential exists for additional variants of COVID-19, including the Omicron
variant, to impede the global economic recovery and exacerbate geographic
differences in the spread of, and response to, COVID-19.



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Overview



We are an internally-managed non-diversified closed-end management investment
company that has elected to be regulated as a BDC under the 1940 Act. In
addition, we have elected, and intend to qualify annually, to be treated for
U.S. federal income tax purposes as a RIC under Subchapter M of the Code.
Through December 31, 2020, we were an externally managed company. On November
18, 2020, the board of directors of the Company approved the adoption of an
internalized management structure, effective January 1, 2021. Since January 1,
2021, we have operated under such internalized management structure.



We commenced operations and completed our initial public offering on January 20,
2011. Under our internalized management structure, our activities are managed by
our senior professionals and are supervised by our board of directors, of which
a majority of the members are independent of us.



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



As a BDC, we are required to comply with certain regulatory requirements. For
instance, we generally have to invest at least 70% of our total assets in
"qualifying assets," including securities of private or thinly traded public
U.S. companies, cash, cash equivalents, U.S. government securities and
high-quality debt investments that mature in one year or less. In addition, we
are only allowed to borrow money such that our asset coverage, as defined in the
1940 Act, equals at least 200% (or 150% if, pursuant to the 1940 Act, certain
requirements are met) after such borrowing, with certain limited exceptions. To
maintain our RIC tax treatment, we must meet specified source-of-income and
asset diversification requirements. In addition, to maintain our RIC tax
treatment, we must timely distribute at least 90% of our net ordinary income and
realized net short-term capital gains in excess of realized net long-term
capital losses, if any, for the taxable year.

Reverse Stock Split; Authorized Share Reduction

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



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



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



                                       57





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



Revenues

We generate revenue in the form of interest income on the debt that we hold and
capital gains, if any, on warrants or other equity interests that we may acquire
in portfolio companies. We invest our assets primarily in privately held
companies with enterprise or asset values between $25 million and $250 million
and generally focus on investment sizes of $10 million to $50 million. We
believe that pursuing opportunities of this size offers several benefits
including reduced competition, a larger investment opportunity set and the
ability to minimize the impact of financial intermediaries. We expect our debt
investments to bear interest at either a fixed or floating rate. Interest on
debt will be payable generally either monthly or quarterly. In some cases our
debt investments may provide for a portion of the interest to be PIK. To the
extent interest is PIK, it will be payable through the increase of the principal
amount of the obligation by the amount of interest due on the then-outstanding
aggregate principal amount of such obligation. The principal amount of the debt
and any accrued but unpaid interest will generally become due at the maturity
date. In addition, we may generate revenue in the form of commitment,
origination, structuring or diligence fees, fees for providing managerial
assistance or investment management services and possibly consulting fees. Any
such fees will be generated in connection with our investments and recognized as
earned.



Expenses



In periods prior to December 31, 2020, our primary operating expenses included
management and incentive fees pursuant to the investment management agreement we
had with MCC Advisors and overhead expenses, including our allocable portion of
our administrator's overhead under the administration agreement, which were paid
during the quarter ended March 31, 2021. Our management and incentive fees
compensated MCC Advisors for its work in identifying, evaluating, negotiating,
closing and monitoring our investments. On November 18, 2020, the board of
directors adopted an internally managed structure, effective January 1, 2021,
under which we bear all costs and expenses of our operations and transactions,
including those relating to:

? our organization and continued corporate existence;

? calculating our NAV (including the cost and expenses of any independent

   valuation firms);

? expenses incurred in monitoring our financial and legal affairs and in

monitoring our investments and performing due diligence on our prospective

   portfolio companies;




 ? interest payable on debt, if any, incurred to finance our investments;




 ? the costs of all offerings of common stock and other securities, if any;

? operating costs associated with employing investment professionals and other

   staff;

? distributions on our shares;

? administration fees payable under our administration agreement;

? amounts payable to third parties relating to, or associated with, making

   investments;

? transfer agent and custodial fees;

? registration fees and listing fees;

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

                                       58

? independent director fees and expenses;

? costs of preparing and filing reports or other documents with the SEC or other

   regulators;

? the costs of any reports, proxy statements or other notices to our

stockholders, including printing costs;

 ? our fidelity bond;

? directors and officers/errors and omissions liability insurance, and any other

   insurance premiums;

? the operating lease of our office space;

? indemnification payments; and

? direct costs and expenses of administration, including audit and legal costs.

Expense Support Agreement



On June 12, 2020, the Company entered into an expense support agreement (the
"Expense Support Agreement") with MCC Advisors and Medley LLC, pursuant to which
MCC Advisors and Medley LLC agreed (jointly and severally) to cap the management
fee and all of the Company's other operating expenses (except interest expenses,
certain extraordinary strategic transaction expenses, and other expenses
approved by the Special Committee of the Board (as described in Note 10)), at
$667,000 per month (the "Cap"). Under the Expense Support Agreement, the Cap
became effective on June 1, 2020 and was to expire on September 30, 2020. On
September 29, 2020, the board of directors, including all of the independent
directors, extended the term of the Expense Support Agreement through the end of
quarter ending December 31, 2020. The Expense Support Agreement expired by its
terms at the close of business on December 31, 2020, in connection with the
adoption of the internalized management structure by the board of directors.



For the three months ended December 31, 2020, the total management fee and the
other operating expenses subject to the Cap (as described above) were $2.5
million, which resulted in $0.3 million of expense support incurred during the
quarter ended December 31, 2020 and due from MCC Advisors. The $0.3 million of
expense support due was netted against Administrator expenses payable in the
accompanying Consolidated Statements of Assets and Liabilities and paid during
the quarter ended March 31, 2021. See "Note 6" for more information.

Portfolio and Investment Activity

As of September 30, 2021 and 2020, our portfolio had a fair market value of approximately $151.6 million and $246.7 million, respectively.

During the year ended September 30, 2021, we received proceeds from sale and
settlements of investments of $124.3 million, including principal and dividend
proceeds, realized net losses on investments of $42.5 million, and invested
$45.3 million, of which $6.5 million was invested in two new portfolio companies
and two new securities in an existing portfolio company during the year.



During the year ended September 30, 2020, we received proceeds from sale and
settlements of investments of $110.6 million, including principal and dividend
proceeds, realized net losses on investments of $50.0 million, and invested
$16.8 million.

The following table summarizes the amortized cost and the fair value of our average portfolio company, including until its sale on October 8, 2020, the equity investment in the MCC Senior Loan Strategy JV I LLC ("MCC JV"), which had been our largest portfolio company:

                                                    September 30,                        September 30,
                                                         2021                                 2020
                                           Amortized Cost       Fair Value      Amortized Cost       Fair Value

Average portfolio company                  $         3,100     $      2,263     $         7,813     $      5,875
Largest portfolio company                           19,469           26,863              37,987           40,807

The following table summarizes the amortized cost and the fair value of investments as of September 30, 2021 (dollars in thousands):

                                           Amortized
                                              Cost         Percentage       Fair Value       Percentage

Senior Secured First Lien Term Loans       $  136,740             65.7 %   $     61,934             40.9 %
Senior Secured Second Lien Term Loans           2,600              1.3     

      2,490              1.6
Senior Secured Notes                            9,306              4.5            9,270              6.1
Secured Debt                                    2,500              1.2            2,500              1.6
Unsecured Debt                                  1,561              0.8                -                -
Equity/Warrants                                54,961             26.5           75,446             49.8
Total Investments                          $  207,668            100.0 %   $    151,640            100.0 %




                                       59

The following table summarizes the amortized cost and the fair value of investments as of September 30, 2020 (dollars in thousands):

                                           Amortized
                                              Cost         Percentage       Fair Value       Percentage

Senior Secured First Lien Term Loans       $  178,843             54.5 %   $    106,463             43.2 %
Senior Secured Second Lien Term Loans          15,476              4.7           13,927              5.6
Unsecured Debt                                  4,601              1.4            2,669              1.1
MCC Senior Loan Strategy JV I LLC              79,888             24.4     

     41,019             16.6
Equity/Warrants                                49,327             15.0           82,666             33.5
Total                                      $  328,135            100.0 %   $    246,744            100.0 %




As of September 30, 2021, our income-bearing investment portfolio based upon
cost represented 86.6% of our total portfolio of which 74.6% bore interest based
on floating rates, such as the London Interbank Offering Rate ("LIBOR"), while
25.4% bore interest at fixed rates. As of September 30, 2021, the weighted
average yield based upon cost of our total portfolio was approximately 6.75%. As
of September 30, 2020, the weighted average yield based upon cost of our total
portfolio was approximately 8.5%. The weighted average yield of our total
portfolio does not represent the total return to our stockholders.

We rate the risk profile of each of our investments based on the following categories:

Credit
Rating    Definition

   1      Investments that are performing above expectations.

   2      Investments that are performing within expectations, with risks that are

neutral or favorable compared to risks at the time of origination. All

          new loans are rated '2'.

   3      Investments that are performing below expectations and that require

closer monitoring, but where no loss of interest, dividend or principal

is expected. Companies rated '3' may be out of compliance with financial

          covenants, however, loan payments are generally not past due.

   4      Investments that are performing below expectations and for which risk
          has increased materially since origination. Some loss of interest or
          dividend is expected but no loss of principal. In addition to the
          borrower being generally out of compliance with debt covenants, loan
          payments may be past due (but generally not more than 180 days past
          due).

   5      Investments that are performing substantially below expectations and
          whose risks have increased substantially since origination. Most or all
          of the debt covenants are out of compliance and payments are
          substantially delinquent. Some loss of principal is expected.




The COVID-19 pandemic impacted our investment ratings, causing downgrades of
certain portfolio companies. As the COVID-19 situation continues to evolve, we
continue to maintain close communications with our portfolio companies to
proactively assess and manage potential risks across our investment portfolio.
We have also increased oversight and analysis of credits in vulnerable
industries in an attempt to improve loan performance and reduce credit risk

                                       60

The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of September 30, 2021 and 2020 (dollars in thousands):

             September 30, 2021               September 30, 2020
        Fair Value       Percentage      Fair Value       Percentage
1       $         -              0.0 %   $    54,256             22.0 %
2           121,508             80.1 %       130,742             53.0 %
3            13,416              8.8 %        40,645             16.5 %
4             9,925              6.6 %        11,325              4.6 %
5             6,791              4.5 %         9,776              3.9 %
Total   $   151,640            100.0 %   $   246,744            100.0 %




Results of Operations

Operating results for the years ended September 30, 2021, 2020, and 2019 are as follows (dollars in thousands):

                                                         For the years ended September 30
                                                        2021            2020           2019
Total investment income                              $    32,307      $  21,522     $   46,299
Less: Net expenses                                        13,784         24,242         67,166
Net investment income/(loss)                              18,523         (2,720 )      (20,867 )
Net realized gains (losses) on investments               (42,486 )      (49,979 )     (112,173 )
Net change in unrealized gains (losses) on
investments                                               25,363        (10,633 )       38,498
Loss on extinguishment of debt                              (122 )       (2,481 )       (2,033 )
Net increase (decrease) in net assets resulting
from operations                                      $     1,278      $ (65,813 )   $  (96,575 )




Investment Income

For the year ended September 30, 2021, investment income totaled $32.3 million, of which $29.6 million was attributable to portfolio interest and dividend income, $2.6 million was attributable to fee income, and $0.1 million was attributable to other income.

For the year ended September 30, 2020, investment income totaled $21.5 million, of which $20.8 million was attributable to portfolio interest and dividend income, and $0.7 million to fee income.

For the year ended September 30, 2019, investment income totaled $46.3 million, of which $44.0 million was attributable to portfolio interest and dividend income, and $2.3 million to fee income.

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Operating Expenses

Operating expenses for the years ended September 30, 2021, 2020, and 2019 are as follows (dollars in thousands):

                                                   For the years ended September 30
                                                 2021              2020           2019
Base management fees                          $     1,146       $     6,359     $ 11,190

Interest and financing expenses                     5,800            14,935

      24,049
General and administrative                          1,012             3,285        7,399
Salaries and benefits                               1,993                 -            -
Administrator expenses                                613             2,227        3,324
Insurance                                           1,620             1,463          623
Directors fees                                      1,040             1,451        1,258
Professional fees, net                                560            (4,768 )     19,323

Expenses before waivers and reimbursements         13,784            24,952

67,166

Expense support reimbursement                           -              (710 )          -
Expenses, net of waivers and reimbursements   $    13,784       $    24,242

$ 67,166

For the year ended September 30, 2021, total operating expenses before management and incentive fee waivers decreased by $11.2 million, or 44.8%, compared to the year ended September 30, 2020.

For the year ended September 30, 2020, total operating expenses before management and incentive fee waivers decreased by $42.2 million, or 62.9%, compared to the year ended September 30, 2019.

Effective beginning January 1, 2021, the Company did not incur any management or
incentive fees, nor was it subject to expense support arrangements due to its
transition to an internal management structure. As a result, there were no
management or incentive fee waivers or expense support reimbursements for such
period.

Interest and Financing Expenses

Interest and financing expenses for the year ended September 30, 2021 decreased
by $9.1 million, or 61.2%, compared to the year ended September 30, 2020. The
decrease in interest and financing expenses was primarily due to the full
repayment of the 2021 Notes on November 20, 2020 and the completion of the
repayment of the Israeli Notes (as defined below) on April 14, 2020.



Interest and financing expenses for the year ended September 30, 2020 decreased
by $9.1 million, or 37.9%, compared to the year ended September 30, 2019. The
decrease in interest and financing expenses was primarily due to the voluntary
repayment of $135.0 million SBA-guaranteed debentures (the "SBA Debentures"),
which the Company repaid between March 28, 2019 and May 10, 2019, as well as the
full repayment of $120.2 million Series A Notes (the "Israeli Notes") between
August 12, 2019 and April 14, 2020.



                                       62

Base Management Fees and Incentive Fees

Base management fees for the year ended September 30, 2021 decreased by $5.2
million, or 82.0%, compared to the year ended September 30, 2020 as, since
January 1, 2021, the Company no longer incurs management fees under its current
internalized structure.



Base management fees for the year ended September 30, 2020 decreased by $4.8
million, or 43.2%, compared to the year ended September 30, 2019 principally due
to the decline in our gross assets during the period.



No incentive fees were paid for the year ended September 30, 2021 or the year
ended September 30, 2020. Since January 1, 2021, the Company no longer incurs
incentive fees under its current internalized structure.

Professional Fees and Other General and Administrative Expenses

Professional fees and general and administrative expenses for the year ended
September 30, 2021 increased by $3.1 million, or 206.0%, compared to the year
ended September 30, 2020 primarily due to a decrease in the insurance proceeds
received in the year ended September 30, 2021 which offset legal expenses.



Professional fees and general and administrative expenses for the year ended
September 30, 2020 decreased by $28.3 million, or 88.5%, compared to the year
ended September 30, 2019 primarily due to insurance proceeds received related to
legal expenses relating to the dismissed stockholder class action, captioned as
FrontFour Capital Group LLC, et al. v Brook Taube et al, as well as a decrease
in legal expenses, general and administrative expenses, administrator expenses,
valuation expenses, and audit expenses, offset by an increase in independent
directors expenses and insurance expenses.

Net Realized Gains/Losses from Investments

We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of an investment, without regard to unrealized gains or losses previously recognized.

During the year ended September 30, 2021, we recognized $42.5 million of realized losses on our portfolio investments. The realized losses were primarily due to the sale of the MCC JV in the first fiscal quarter of 2021.

During the year ended September 30, 2020, we recognized $50.0 million of realized losses on our portfolio investments. The realized losses were primarily due to the sale of three investments and the write-off of two investments.

During the year ended September 30, 2019, we recognized $112.2 million of
realized losses on our portfolio investments. The realized losses were primarily
due to the non-cash restructuring transactions of two investments, the sale of
two investments and the write-off of two investments, partially offset by a
realized gain resulting from exercising warrants and converting junior preferred
equity in one portfolio company into common shares of a new portfolio company.

Realized loss on extinguishment of debt

In the event that we modify or extinguish our debt prior to maturity, we account
for it in accordance with ASC 470-50, Modifications and Extinguishments, in
which we measure the difference between the reacquisition price of the debt and
the net carrying amount of the debt, which includes any unamortized debt
issuance costs.



During the year ended September 30, 2021, the Company recognized a net loss on
extinguishment of debt of $0.1 million, which was due to the Company's $74.0
million repayment of the 2021 Notes on November 20, 2020.



                                       63

During the year ended September 30, 2020, the Company recognized a net loss on
extinguishment of debt of $2.5 million, which was due to the Company's $34.1
million repayment of the Israeli Notes on December 31, 2019, $34.9 million
repayment of the Israeli Notes on March 31, 2020 and $21.1 million repayment of
the Israeli Notes on April 14, 2020.



During the year ended September 30, 2019, the Company recognized a net loss on
extinguishment of debt of $2.0 million, which was primarily due to a loss on
extinguishment of debt of $1.8 million from the pre-payment of $135.0 million of
SBA Debentures in connection with SBIC LP's surrender of its SBIC license and a
$0.2 million loss on extinguishment of debt from the $12.0 million partial
redemption of the 2023 Notes.

Net Unrealized Appreciation/Depreciation on Investments

Net change in unrealized appreciation or depreciation on investments reflects the net change in the fair value of our investment portfolio.

For the year ended September 30, 2021, we had $25.3 million of net unrealized
appreciation on investments. The net unrealized appreciation was comprised of
$54.8 million of net unrealized depreciation on investments and $80.1 million of
net unrealized appreciation that resulted from the reversal of previously
recorded unrealized depreciation on investments that were realized, partially
sold, or written-off during the year.



For the year ended September 30, 2020, we had $10.6 million of net unrealized
depreciation on investments. The net unrealized depreciation comprised of $37.1
million of net unrealized depreciation on investments, offset by $26.5 million
of net unrealized appreciation that resulted from the reversal of previously
recorded unrealized depreciation on investments that were realized, partially
sold or written-off during the year.



For the year ended September 30, 2019, we had $38.5 million of net unrealized
appreciation on investments. The net unrealized appreciation comprised of $59.6
million of net unrealized depreciation on investments, offset by $98.1 million
of net unrealized appreciation that resulted from the reversal of previously
recorded unrealized depreciation on investments that were realized or
written-off during the year.

Provision for Deferred Taxes on Unrealized Depreciation on Investments

Certain consolidated subsidiaries of ours are subject to U.S. federal and state
income taxes. These taxable subsidiaries are not consolidated with the Company
for income tax purposes, but are consolidated for GAAP purposes, and may
generate income tax liabilities or assets from temporary differences in the
recognition of items for financial reporting and income tax purposes at the
subsidiaries. For the years ended September 30, 2021, 2020 and 2019, the Company
did not record a change in provision for deferred taxes on the unrealized
(appreciation)/depreciation on investments.



                                       64

Changes in Net Assets from Operations

For the year ended September 30, 2021, we recorded a net increase in net assets
resulting from operations of $1.2 million compared to a net decrease in net
assets resulting from operations of $65.8 million for the year ended September
30, 2020, and a net decrease in net assets resulting from operations of $96.6
million for the year ended September 30, 2019 as a result of the factors
discussed above. Based on 2,677,891, 2,723,709, and 2,723,709 weighted average
common shares outstanding for the years ended September 30, 2021, 2020, and
2019, respectively, our per share net increase (decrease) in net assets
resulting from operations was $0.46, $(24.16) and $(35.46) for the years ended
September 30, 2021, 2020, and 2019, respectively.

Financial Condition, Liquidity and Capital Resources

As a RIC, we distribute substantially all of our net income to our stockholders
and have an ongoing need to raise additional capital for investment purposes. To
fund growth, we have a number of alternatives available to increase capital,
including raising equity, increasing debt, and funding from operational cash
flow.



Our liquidity and capital resources historically have been generated primarily
from the net proceeds of public offerings of common stock, advances from the
Revolving Credit Facility (which the Company voluntarily satisfied and
terminated) and net proceeds from the issuance of notes as well as cash flows
from operations. In the future, we may generate cash from future offerings of
securities, future borrowings and cash flows from operations, including interest
earned from the temporary investment of cash in U.S. government securities and
other high-quality debt investments that mature in one year or less. Our primary
use of funds is investments in our targeted asset classes, cash distributions to
our stockholders, and other general corporate purposes.

As of September 30, 2021, we had $69.4 million in cash and cash equivalents.

In order to maintain our RIC tax treatment under the Code, we intend to
distribute to our stockholders substantially all of our taxable income, but we
may also elect to periodically spill over certain excess undistributed taxable
income from one tax year into the next tax year. In addition, as a BDC, for each
taxable year we generally are required to meet a coverage ratio of total assets
to total senior securities, which include borrowings and any preferred stock we
may issue in the future, of at least 200% (or 150% if, pursuant to the 1940 Act,
certain requirements are met). This requirement limits the amount that we may
borrow.



Unsecured Notes



2021 Notes



On December 17, 2015, the Company issued $70.8 million in aggregate principal
amount of 6.50% unsecured notes that mature on January 30, 2021 (the "2021
Notes"). On January 14, 2016, the Company closed an additional $3.25 million in
aggregate principal amount of the 2021 Notes, pursuant to the partial exercise
of the underwriters' option to purchase additional notes. The 2021 Notes bore
interest at a rate of 6.50% per year, payable quarterly on January 30, April 30,
July 30 and October 30 of each year, beginning January 30, 2016.



On October 21, 2020, the Company caused notices to be issued to the holders of
the 2021 Notes regarding the Company's exercise of its option to redeem, in
whole, the issued and outstanding 2021 Notes, pursuant to Section 1104 of the
Indenture dated as of February 7, 2012, between the Company and U.S. Bank
National Association, as trustee, and Section 101(h) of the Third Supplemental
Indenture dated as of December 17, 2015. The Company redeemed $74,012,825 in
aggregate principal amount of the issued and outstanding 2021 Notes on November
20, 2020 (the "Redemption Date"). The 2021 Notes were redeemed at 100% of their
principal amount ($25 per 2021 Note), plus the accrued and unpaid interest
thereon from October 31, 2020, through, but excluding, the Redemption Date. The
Company funded the redemption of the 2021 Notes with cash on hand.



2023 Notes

On March 18, 2013, the Company issued $60.0 million in aggregate principal
amount of 2023 Notes. As of March 30, 2016, the 2023 Notes may be redeemed in
whole or in part at any time or from time to time at the Company's option. On
March 26, 2013, the Company closed an additional $3.5 million in aggregate
principal amount of 2023 Notes, pursuant to the partial exercise of the
underwriters' option to purchase additional notes. The 2023 Notes bear interest
at a rate of 6.125% per year, payable quarterly on March 30, June 30, September
30 and December 30 of each year, beginning June 30, 2013.



                                       65





On December 12, 2016, the Company entered into an "At-The-Market" ("ATM") debt
distribution agreement with FBR Capital Markets & Co., through which the Company
could offer for sale, from time to time, up to $40.0 million in aggregate
principal amount of the 2023 Notes. The Company sold 1,573,872 of the 2023 Notes
at an average price of $25.03 per note, and raised $38.6 million in net
proceeds, through the ATM debt distribution agreement.



On March 10, 2018, the Company redeemed $13.0 million in aggregate principal
amount of the 2023 Notes. The redemption was accounted for as a debt
extinguishment in accordance with ASC 470-50, Modifications and Extinguishments,
which resulted in a realized loss of $0.3 million and was recorded on the
Consolidated Statements of Operations as a loss on extinguishment of debt.



On December 31, 2018, the Company redeemed $12.0 million in aggregate principal
amount of the 2023 Notes. The redemption was accounted for as a debt
extinguishment in accordance with ASC 470-50, Modifications and Extinguishments,
which resulted in a realized loss of $0.2 million and was recorded on the
Consolidated Statements of Operations as a loss on extinguishment of debt.



On December 21, 2020, the Company announced that it completed the application
process for and was authorized to transfer the listing of the 2023 Notes to the
NASDAQ Global Market. The listing and trading of the 2023 Notes on the NYSE
ceased at the close of trading on December 31, 2020. Effective January 4, 2021,
the 2023 Notes trade on the NASDAQ Global Market under the trading symbol
"PFXNL."



Secured Notes



Israeli Notes

On January 26, 2018, the Company priced a debt offering in Israel of $121.3 million of Israeli Notes. The Israeli Notes were listed on the TASE and denominated in New Israeli Shekels, but linked to the US Dollar at a fixed exchange rate which mitigates any currency exposure to the Company.

On June 5, 2018, the Company announced that on June 1, 2018, its board of directors authorized the Company to repurchase and retire up to $20 million of the Company's outstanding Israeli Notes on the TASE.

During the quarter ended December 31, 2018, the Company exchanged $1.0 million
United States Dollars to New Israeli Shekels at a rate of 3.73 USD/NIS in order
to repurchase the Israeli Notes on the TASE. As the Israeli Notes were trading
below par at the time of the repurchase, and the USD/NIS (foreign currency) spot
rate was higher than the fixed exchange rate agreed upon in the deed of trust,
the Company was able to repurchase and retire 3,812,000 units, which resulted in
$1,119,201 aggregate principal amount of the Israeli Notes being retired. The
redemption was accounted for as a debt extinguishment in accordance with ASC
470-50, Modifications and Extinguishments, which resulted in a realized gain of
$0.1 million and was recorded on the Consolidated Statements of Operations as a
gain on extinguishment of debt.



On December 31, 2019 in addition to the scheduled 12.5% quarterly amortization
payment, the Company used proceeds from its principal collections in PhenixFIN
SLF and PhenixFIN Small Business Fund to pre-pay an additional $19.1 million of
the Israeli Notes. The pre-payment was accounted for as a debt extinguishment in
accordance with ASC 470-50, Modifications and Extinguishments, which resulted in
a realized loss of $0.9 million and was recorded on the Consolidated Statements
of Operations as a net loss on extinguishment of debt.



On March 31, 2020, in addition to the scheduled 12.5% quarterly amortization
payment, the Company used proceeds from its principal repayments in assets held
by PhenixFIN SLF and PhenixFIN Small Business Fund to pre-pay an additional
$19.8 million of the Israeli Notes. The pre-payment was accounted for as a debt
extinguishment in accordance with ASC 470-50, Modifications and Extinguishments,
which resulted in a realized loss of $0.9 million and was recorded on the
Consolidated Statements of Operations as a net loss on extinguishment of debt.



On April 14, 2020, the Company repaid the remaining $21.1 million of Israeli
Notes outstanding, and as such is no longer subject to any covenants relating
thereto. The Israeli Notes were redeemed at 100% of their principal amount, plus
the accrued interest thereon, through April 14, 2020.

Contractual Obligations and Off-Balance Sheet Arrangements

As of September 30, 2021 and 2020, we had commitments under loan and financing
agreements to fund up to $4.9 million to six portfolio companies and $3.9
million to five portfolio companies, respectively. These commitments are
primarily composed of senior secured term loans and revolvers, and the
determination of their fair value is included in the Consolidated Schedule of
Investments. The commitments are generally subject to the borrowers meeting
certain criteria such as compliance with covenants and certain operational
metrics. The terms of the borrowings and financings subject to commitment are
comparable to the terms of other loan and equity securities in our portfolio. A
summary of the composition of the unfunded commitments as of September 30, 2021
and 2020 is shown in the table below (dollars in thousands):



                                                                September 30,       September 30,
                                                                    2021                2020
Redwood Services Group, LLC - Revolver                         $         1,575     $         1,050
1888 Industrial Services, LLC - Revolver                                 1,078               1,078
Alpine SG - Revolver                                                     1,000                   -
Kemmerer Operations, LLC - Delayed Draw Term Loan                          908                 908
NVTN LLC - DDTL                                                            220                 220
Black Angus Steakhouses, LLC - Super Priority DDTL                         167                   -
DataOnline Corp. - Revolver                                                  -                 179
NVTN LLC - Super Priority DDTL                                             

 -                 500
Total unfunded commitments                                     $         4,948     $         3,935




                                       66





We entered into an investment management agreement with MCC Advisors on January
11, 2011 (the "Investment Management Agreement") in accordance with the 1940
Act. The Investment Management Agreement became effective upon the pricing of
our initial public offering. Under the Investment Management Agreement, MCC
Advisors agreed to provide us with investment advisory and management services.
For these services, we agreed to pay a base management fee equal to a percentage
of our gross assets and an incentive fee based on our performance.



We also entered into an administration agreement with MCC Advisors as our
administrator. The administration agreement became effective upon the pricing of
our initial public offering. Under the administration agreement, MCC Advisors
agreed to furnish us with office facilities and equipment, provide us clerical,
bookkeeping and record keeping services at such facilities and provide us with
other administrative services necessary to conduct our day-to-day operations.
MCC Advisors also provided on our behalf significant managerial assistance to
those portfolio companies to which we are required to provide such assistance
while the Investment Management Agreement and administration agreement were

in
effect.

The Investment Management Agreement and administration agreement expired at the close of business on December 31, 2020, in connection with the Company's adoption of an internalized management structure.

As of September 30, 2021, the future fixed commitments for cash payments in connection with our Notes due 2023 and rent obligations under our office lease for each of the next five years and thereafter are as follows:

                           2022             2023             2024           2025           2026        Thereafter          Total
2023 Notes               $       -     $  (77,846,800 )   $        -     $ 

- $ - $ - $ (77,846,800 ) Operating Lease Obligation (1)

             (84,000 )         (144,000 )     (144,000 )     (144,000 )     (144,000 )       (24,000 )         (684,000 )
Total contractual
obligations              $ (84,000 )   $  (77,990,800 )   $ (144,000 )   $ (144,000 )   $ (144,000 )   $   (24,000 )   $  (78,530,800 )

(1) Operating Lease Obligation means a rent payment obligation under a lease

classified as an operating lease and disclosed pursuant to ASC 842, as may be

     modified or supplemented.

On March 27, 2015, the Company and Great American Life Insurance Company ("GALIC") entered into a limited liability company operating agreement to co-manage MCC Senior Loan Strategy JV I LLC ("MCC JV"). The Company and GALIC had committed to provide $100 million of equity to MCC JV, with the Company providing $87.5 million and GALIC providing $12.5 million.

MCC JV commenced operations on July 15, 2015. On August 4, 2015, MCC JV entered
into a senior secured revolving credit facility (the "JV Facility") led by
Credit Suisse, AG with commitments of $100 million. On March 30, 2017, the
Company amended the JV Facility previously administered by CS and facilitated
the assignment of all rights and obligations of CS under the JV Facility to
Deutsche Bank AG, New York Branch, ("DB") and increased the total loan
commitments to $200 million. The JV Facility bears interest at a rate of LIBOR
(with no minimum + 2.75% per annum. On March 29, 2019, the JV Facility
reinvestment period was extended to June 28, 2019 from March 30, 2019. On June
28, 2019, the JV Facility reinvestment period was extended to October 28, 2019.
On October 28, 2019, the JV Facility reinvestment period was further extended
from October 28, 2019 to March 31, 2020, the maturity date was extended to March
31, 2023 and the interest rate was modified from bearing an interest rate of
LIBOR (with no minimum) + 2.50% per annum to LIBOR (with no minimum) + 2.75% per
annum.



The Company has determined that MCC JV is an investment company under ASC 946,
however in accordance with such guidance, the Company will generally not
consolidate its investment in a company other than a wholly owned investment
company subsidiary or a controlled operating company whose business consists of
providing services to the Company. Accordingly, the Company does not consolidate
its interest in MCC JV.



On October 8, 2020, the Company, GALIC, MCC JV, and an affiliate of Golub
entered into a Membership Interest Purchase Agreement pursuant to which a fund
affiliated with and managed by Golub concurrently purchased all of the Company's
interest in the MCC JV and all of GALIC's interest in the MCC JV for a
pre-adjusted gross purchase price of $156.4 million and an adjusted gross
purchase price (which constitutes the aggregate consideration for the membership
interests) of $145.3 million (giving effect to adjustments primarily for
principal and interest payments from portfolio companies of MCC JV from July 1,
2020 through October 7, 2020), resulting in net proceeds (before transaction
expenses) of $41.0 million and $6.6 million for MCC and GALIC, respectively, on
the terms and subject to the conditions set forth in the Membership Interest
Purchase Agreement, including the representations, warranties, covenants and
indemnities contained therein. In connection with the closing of the transaction
on October 8, 2020, MCC JV repaid in full all outstanding borrowings under, and
terminated, its senior secured revolving credit facility, dated as of August 4,
2015, as amended, administered by Deutsche Bank AG, New York Branch.



                                       67





Distributions



We have elected, and intend to qualify annually, to be treated for U.S. federal
income tax purposes as a RIC under Subchapter M of the Code. As a RIC, in any
taxable year with respect to which we timely distribute at least 90 percent of
the sum of our (i) investment company taxable income (which is generally our net
ordinary income plus the excess of realized net short-term capital gains over
realized net long-term capital losses) determined without regard to the
deduction for dividends paid and (ii) net tax exempt interest income (which is
the excess of our gross tax exempt interest income over certain disallowed
deductions), we (but not our stockholders) generally will not be subject to U.S.
federal income tax on investment company taxable income and net capital gains
that we distribute to our stockholders. We intend to distribute annually all or
substantially all of such income, but we may also elect to periodically spill
over certain excess undistributed taxable income from one tax year to the next
tax year. To the extent that we retain our net capital gains or any investment
company taxable income, we will be subject to U.S. federal income tax. We may
choose to retain our net capital gains or any investment company taxable income,
and pay the associated federal corporate income tax or excise tax, described
below.



Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% U.S. federal excise
tax payable by us. To avoid this tax, we must distribute (or be deemed to have
distributed) during each calendar year an amount equal to the sum of:

1) at least 98.0% of our ordinary income (not taking into account any capital

    gains or losses) for the calendar year;

2) at least 98.2% of the amount by which our capital gains exceed our capital

losses (adjusted for certain ordinary losses) for a one-year period ending on

October 31st of the calendar year; and

3) income realized, but not distributed, in preceding years and on which we did

    not pay federal income tax.




While we intend to distribute any income and capital gains in the manner
necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient
amounts of our taxable income and capital gains may not be distributed to avoid
entirely the imposition of the tax. In that event, we will be liable for the tax
only on the amount by which we do not meet the foregoing distribution
requirement.



We intend to pay quarterly dividends to our stockholders out of assets legally
available for distribution. We cannot assure you that we will achieve investment
results that will allow us to pay a specified level of dividends or year-to-year
increases in dividends. In addition, the inability to satisfy the asset coverage
test applicable to us as a BDC could limit our ability to pay dividends. All
dividends will be paid at the discretion of our board of directors and will
depend on our earnings, our financial condition, maintenance of our RIC tax
treatment, compliance with applicable BDC regulations and such other factors as
our board of directors may deem relevant from time to time. We cannot assure you
that we will pay dividends to our stockholders in the future.

To the extent our taxable earnings fall below the total amount of our distributions for a taxable year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes.

Stockholders should read any written disclosure accompanying a distribution carefully and should not assume that the source of any distribution is our ordinary income or gains.

We have adopted an "opt out" dividend reinvestment plan for our common
stockholders. As a result, if we declare a cash dividend or other distribution,
each stockholder that has not "opted out" of our dividend reinvestment plan will
have their dividends automatically reinvested in additional shares of our common
stock rather than receiving cash dividends. Stockholders who receive
distributions in the form of shares of common stock will be subject to the same
federal, state and local tax consequences as if they received cash
distributions.

There were no dividend distributions during the year ended September 30, 2021.

Related Party Transactions

Concurrent with the pricing of our IPO, we entered into a number of business relationships with affiliated or related parties, including the following:

? We entered into the Investment Management Agreement with MCC Advisors on

January 11, 2011, which expired December 31, 2020. Mr. Brook Taube,

Chairman and Chief Executive Officer through December 31, 2020 and

director through January 21, 2021 and Mr. Seth Taube, director through

January 21, 2021, are both affiliated with MCC Advisors and Medley.

? Through December 31, 2020, MCC Advisors provided us with the office facilities

and administrative services necessary to conduct day-to-day operations pursuant

to our administration agreement. We reimbursed MCC Advisors for the allocable

portion (subject to the review and approval of our board of directors) of

overhead and other expenses incurred by it in performing its obligations under

the administration agreement, including rent, the fees and expenses associated

with performing compliance functions, and our allocable portion of the cost of

our Chief Financial Officer and Chief Compliance Officer and their respective

   staffs.




                                       68





On June 12, 2020, the Company entered into the Expense Support Agreement with
MCC Advisors and Medley LLC, pursuant to which MCC Advisors and Medley LLC
agreed (jointly and severally) to cap the management fee and all of the
Company's other operating expenses (except interest expenses, certain
extraordinary strategic transaction and expenses, and other expenses approved by
the Special Committee) at $667,000 per month (the "Cap"). Under the Expense
Support Agreement, the Cap became effective on June 1, 2020 and was to expire on
September 30, 2020. On September 29, 2020, the board of directors, including all
of the independent directors, extended the term of the Expense Support Agreement
through the end of quarter ending December 31, 2020. The Expense Support
Agreement expired by its terms at the close of business on December 31, 2020, in
connection with the adoption of the internalized management structure by the
board of directors.



In addition, we have adopted a formal business code of conduct and ethics that
governs the conduct of our CEO, CFO, chief accounting officer (which role is
currently fulfilled by our CFO) and controller (Covered Officers). Our officers
and directors also remain subject to the duties imposed by both the 1940 Act and
the Delaware General Corporation Law. Our Code of Business Conduct and Ethics
requires that all Covered Officers promote honest and ethical conduct, including
the ethical handling of actual or apparent conflicts of interest between an
individual's personal and professional relationships. Pursuant to our Code of
Business Conduct and Ethics, each Covered Officer must disclose to the Company's
CCO any conflicts of interest, or actions or relationships that might give rise
to a conflict. Any approvals or waivers under our Code of Business Conduct and
Ethics must be considered by the disinterested directors.

Investment Management Agreement

We entered into an investment management agreement with MCC Advisors on January
11, 2011 (the "Investment Management Agreement"), which expired December 31,
2020.

Under the terms of the Investment Management Agreement, MCC Advisors:

? determined the composition of our portfolio, the nature and timing of the

changes to our portfolio and the manner of implementing such changes;

? identified, evaluated and negotiated the structure of the investments we made

(including performing due diligence on our prospective portfolio companies);

   and

? executed, closed, monitored and administered the investments we made, including

   the exercise of any voting or consent rights.

MCC Advisors' services under the Investment Management Agreement were not exclusive, and it was free to furnish similar services to other entities so long as its services to us were not impaired.

Pursuant to the Investment Management Agreement, we paid MCC Advisors a fee for
investment advisory and management services consisting of a base management

fee
and a two-part incentive fee.

On December 3, 2015, MCC Advisors recommended and, in consultation with the
Board, agreed to reduce fees under the Investment Management Agreement.
Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross
assets above $1 billion. In addition, MCC Advisors reduced its incentive fee
from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5%
on pre-incentive fee net investment income over a 6% hurdle. Moreover, the
revised incentive fee includes a netting mechanism and is subject to a rolling
three-year look back from January 1, 2016 forward. Under no circumstances would
the new fee structure result in higher fees to MCC Advisors than fees under the
prior investment management agreement.



The following discussion of our base management fee and two-part incentive fee
reflect the terms of the fee waiver agreement executed by MCC Advisors on
February 8, 2016 (the "Fee Waiver Agreement"). The terms of the Fee Waiver
Agreement were effective as of January 1, 2016, and were a permanent reduction
in the base management fee and incentive fee on net investment income payable to
MCC Advisors for the investment advisory and management services it provided
under the Investment Management Agreement. The Fee Waiver Agreement did not
change the second component of the incentive fee, which was the incentive fee on
capital gains.

On January 15, 2020, the Company's board of directors, including all of the
independent directors, approved the renewal of the Investment Management
Agreement through the later of April 1, 2020 or so long as the Amended and
Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the "Amended
MCC Merger Agreement"), by and between the Company and Sierra (the "Amended MCC
Merger Agreement") was in effect, but no longer than a year; provided that, if
the Amended MCC Merger Agreement is terminated by Sierra, then the termination
of the Investment Management Agreement would be effective on the 30th day
following receipt of Sierra's notice of termination to the Company. On May 1,
2020, the Company received a notice of termination of the Amended MCC Merger
Agreement from Sierra. Under the Amended MCC Merger Agreement, either party was
permitted, subject to certain conditions, to terminate the Amended MCC Merger
Agreement if the merger was not consummated by March 31, 2020. Sierra elected to
do so on May 1, 2020. As result of the termination by Sierra of the Amended MCC
Merger Agreement on May 1, 2020, the Investment Management Agreement would have
been terminated effective as of May 31, 2020. On May 21, 2020, the Board,
including all of the independent directors, extended the term of the Investment
Management Agreement through the end of the then-current quarter, June 30, 2020.
On June 12, 2020, the Board, including all of the independent directors,
extended the term of the Investment Management Agreement through September 30,
2020. On September 29, the Board, including all of the independent directors,
extended the term of the Investment Management Agreement through December 31,
2020. Mr. Brook Taube, Chairman and Chief Executive Officer through December 31,
2020 and director through January 21, 2021 and Mr. Seth Taube, director through
January 21, 2021 are affiliated with MCC Advisors and Medley.



                                       69





On November 18, 2020, the Board approved the adoption of an internalized
management structure effective January 1, 2021. The new management structure
replaces the current Investment Management and Administration Agreements with
MCC Advisors LLC, which expired on December 31, 2020. To lead the internalized
management team, the Board approved the appointment of David Lorber, who has
served as an independent director of the Company since April 2019, as interim
Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the
Company, each effective January 1, 2021. In connection with his appointment, Mr.
Lorber stepped down from the Compensation Committee of the Board, the Nominating
and Corporate Governance Committee of the Board, and the Special Committee

of
the Board.



Base Management Fee

Through December 31, 2020, for providing investment advisory and management
services to us, MCC Advisors received a base management fee. The base management
fee was calculated at an annual rate of 1.75% (0.4375% per quarter) of up to
$1.0 billion of the Company's gross assets and 1.50% (0.375% per quarter) of any
amounts over $1.0 billion of the Company's gross assets and was payable
quarterly in arrears. The base management fee was to be calculated based on the
average value of the Company's gross assets at the end of the two most recently
completed calendar quarters and was to be appropriately pro-rated for any
partial quarter.



Incentive Fee

Through December 31, 2020, the incentive fee had two components, as follows:

Incentive Fee Based on Income

The first component of the incentive fee was payable quarterly in arrears and
was based on our pre-incentive fee net investment income earned during the
calendar quarter for which the incentive fee was being calculated. MCC Advisors
was entitled to receive the incentive fee on net investment income from us if
our Ordinary Income (as defined below) exceeded a quarterly "hurdle rate" of
1.5%. The hurdle amount was calculated after making appropriate adjustments to
the Company's net assets, as determined as of the beginning of each applicable
calendar quarter, in order to account for any capital raising or other capital
actions as a result of any issuances by the Company of its common stock
(including issuances pursuant to our dividend reinvestment plan), any repurchase
by the Company of its own common stock, and any dividends paid by the Company,
each as may have occurred during the relevant quarter.



The second component of the incentive fee was determined and payable in arrears
as of the end of each calendar year (or upon termination of the Investment
Management Agreement as of the termination date) and equaled 20.0% of our
cumulative aggregate realized capital gains less cumulative realized capital
losses, unrealized capital depreciation (unrealized depreciation on a gross
investment-by-investment basis at the end of each calendar year) and all capital
gains upon which prior performance-based capital gains incentive fee payments
were previously made to the investment adviser.



Critical Accounting Policies



The preparation of financial statements and related disclosures in conformity
with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the periods reported.
Actual results could materially differ from those estimates. We have identified
the following items as critical accounting policies.

Valuation of Portfolio Investments

The Company follows ASC 820 for measuring the fair value of portfolio
investments. Fair value is the price that would be received in the sale of an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Where available, fair value is based on
observable market prices or parameters, or derived from such prices or
parameters. Where observable prices or inputs are not available, valuation
models are applied. These valuation models involve some level of management
estimation and judgment, the degree of which is dependent on the price
transparency for the instruments or market and the instruments' complexity. The
Company's fair value analysis includes an analysis of the value of any unfunded
loan commitments. Financial investments recorded at fair value in the
consolidated financial statements are categorized for disclosure purposes based
upon the level of judgment associated with the inputs used to measure their
value. The valuation hierarchical levels are based upon the transparency of the
inputs to the valuation of the investment as of the measurement date.
Investments which are valued using NAV as a practical expedient are excluded
from this hierarchy, and certain prior period amounts have been reclassified to
conform to the current period presentation. The three levels are defined below:



    ?   Level 1 - Valuations based on quoted prices in active markets for
        identical assets or liabilities at the measurement date.

? Level 2 - Valuations based on inputs other than quoted prices in active

markets included in Level 1, which are either directly or indirectly

        observable at the measurement date. This category includes quoted prices
        for similar assets or liabilities in active markets, quoted prices for

identical or similar assets or liabilities in non-active markets including

actionable bids from third parties for privately held assets or

liabilities, and observable inputs other than quoted prices such as yield

curves and forward currency rates that are entered directly into valuation

        models to determine the value of derivatives or other assets or
        liabilities.




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? Level 3 - Valuations based on inputs that are unobservable and where there

is little, if any, market activity at the measurement date. The inputs for

the determination of fair value may require significant management

judgment or estimation and are based upon management's assessment of the

assumptions that market participants would use in pricing the assets or

liabilities. These investments include debt and equity investments in

private companies or assets valued using the Market or Income Approach and

may involve pricing models whose inputs require significant judgment or

estimation because of the absence of any meaningful current market data

for identical or similar investments. The inputs in these valuations may

include, but are not limited to, capitalization and discount rates, beta

and EBITDA multiples. The information may also include pricing information

or broker quotes which include a disclaimer that the broker would not be

held to such a price in an actual transaction. The non-binding nature of

consensus pricing and/or quotes accompanied by disclaimer would result in

        classification as Level 3 information, assuming no additional
        corroborating evidence.




We value investments for which market quotations are readily available at their
market quotations, which are generally obtained from an independent pricing
service or multiple broker-dealers or market makers. We weight the use of
third-party broker quotes, if any, in determining fair value based on our
understanding of the level of actual transactions used by the broker to develop
the quote and whether the quote was an indicative price or binding offer.
However, a readily available market value is not expected to exist for many of
the investments in our portfolio, and we value these portfolio investments at
fair value as determined in good faith by our board of directors under our
valuation policy and process. We may seek pricing information with respect to
certain of our investments from pricing services or brokers or dealers in order
to value such investments.



Valuation methods may include comparisons of financial ratios of the portfolio
companies that issued such private equity securities to peer companies that are
public, the nature and realizable value of any collateral, the portfolio
company's ability to make payments and its earnings and discounted cash flows,
the markets in which the portfolio company does business, and other relevant
factors. When an external event such as a purchase transaction, public offering
or subsequent equity sale occurs, we will consider the pricing indicated by the
external event to corroborate the private equity valuation. Due to the inherent
uncertainty of determining the fair value of investments that do not have a
readily available market value, the fair value of the investments may differ
significantly from the values that would have been used had a readily available
market value existed for such investments, and the differences could be
material.



Our board of directors is ultimately and solely responsible for determining the
fair value of the investments in our portfolio that are not publicly traded,
whose market prices are not readily available on a quarterly basis or any other
situation where portfolio investments require a fair value determination.

With respect to investments for which market quotations are not readily available, our board of directors undertake a multi-step valuation process each quarter, as described below:

? Our quarterly valuation process generally begins with each investment being

initially valued by a Valuation Firm.

? Preliminary valuation conclusions will then be documented and discussed with

   senior management.

? The audit committee of the board of directors reviews the preliminary

valuations with management and the Valuation Firms.

? The board of directors discusses the valuations and determines the fair value

of each investment in the Company's portfolio in good faith based on the input

   of management, the respective Valuation Firms and the audit committee.




In following these approaches, the types of factors that are taken into account
in fair value pricing investments include 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; the portfolio
company's earnings and discounted cash flows; the markets in which the portfolio
company does business; comparisons of financial ratios of peer companies that
are public; comparable merger and acquisition transactions; and the principal
market and enterprise values.



Determination of fair values involves subjective judgments and estimates made by
management. The notes to our financial statements refer to the uncertainty with
respect to the possible effect of such valuations, and any change in such
valuations, on our consolidated financial statements.



Revenue Recognition

Our revenue recognition policies are as follows:

Investments and Related Investment Income We account for investment transactions
on a trade-date basis and interest income, adjusted for amortization of premiums
and accretion of discounts, is recorded on an accrual basis. For investments
with contractual PIK interest, which represents contractual interest accrued and
added to the principal balance that generally becomes due at maturity, we will
not accrue PIK interest if the portfolio company valuation indicates that the
PIK interest is not collectible. Origination, closing and/or commitment fees
associated with investments in portfolio companies are recognized as income when
the investment transaction closes. Other fees are capitalized as deferred
revenue and recorded into income over the respective period. Prepayment
penalties received by the Company for debt instruments paid back to the Company
prior to the maturity date are recorded as income upon receipt. Realized gains
or losses on investments are measured by the difference between the net proceeds
from the disposition and the amortized cost basis of investment, without regard
to unrealized gains or losses previously recognized. We report changes in the
fair value of investments that are measured at fair value as a component of the
net change in unrealized appreciation/(depreciation) on investments in our
Consolidated Statements of Operations.



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Non-accrual We place loans on non-accrual status when principal and interest
payments are past due by 90 days or more, or when there is reasonable doubt that
we will collect principal or interest. Accrued interest is generally reversed
when a loan is placed on non-accrual. Interest payments received on non-accrual
loans may be recognized as income or applied to principal depending upon
management's judgment. Non-accrual loans are restored to accrual status when
past due principal and interest is paid and, in our management's judgment, are
likely to remain current. At September 30, 2021, certain investments in 9
portfolio companies held by the Company were on non-accrual status with a
combined fair value of approximately $13.9 million, or 9.2% of the fair value of
our portfolio. At September 30, 2020, certain investments in eight portfolio
companies held by the Company were on non-accrual status with a combined fair
value of approximately $21.7 million, or 8.8% of the fair value of our
portfolio. At September 30, 2019, certain investments in seven portfolio
companies held by the Company were on non-accrual status with a combined fair
value of approximately $22.3 million, or 5.6% of the fair value of our
portfolio.



Federal Income Taxes

The Company has elected, and intends to qualify annually, to be treated for U.S.
federal income tax purposes as a RIC under Subchapter M of the Code and it
intends to operate in a manner so as to maintain its RIC tax treatment. To do
so, among other things, the Company is required to meet certain source of income
and asset diversification requirements and must timely distribute to its
stockholders at least 90% of the sum of investment company taxable income
("ICTI") including PIK, as defined by the Code, and net tax exempt interest
income (which is the excess of our gross tax exempt interest income over certain
disallowed deductions) for each taxable year. The Company will be subject to a
nondeductible U.S. federal excise tax of 4% on undistributed income if it does
not distribute at least 98% of its net ordinary income for any calendar year and
98.2% of its capital gain net income for each one-year period ending on October
31 of such calendar year and any income realized, but not distributed, in
preceding years and on which it did not pay federal income tax. 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 and pay
a 4% excise tax on such income, as required. To the extent that the Company
determines that its estimated current year annual taxable income will be in
excess of estimated current year dividend distributions for excise tax purposes,
the Company accrues excise tax, if any, on estimated excess taxable income as
taxable income is earned. Any such carryover ICTI must be distributed before the
end of that next tax year through a dividend declared prior to filing the final
tax return related to the year which generated such ICTI.



Because federal income tax requirements differ from GAAP, distributions in
accordance with tax requirements may differ from net investment income and
realized gains recognized for financial reporting purposes. Differences may be
permanent or temporary. Permanent differences are reclassified among capital
accounts in the consolidated financial statements to reflect their tax
character. Temporary differences arise when certain items of income, expense,
gain or loss are recognized at some time in the future. Differences in
classification may also result from the treatment of short-term gains as
ordinary income for tax purposes.



Recent Developments

On November 9, 2021, the Company entered into an underwriting agreement, by and
between the Company and Oppenheimer & Co. Inc., as representative of the several
underwriters named in Exhibit A thereto, in connection with the issuance and
sale (the "Offering") of $57,500,000 (including the underwriters' option to
purchase up to $7,500,000 aggregate principal amount) in aggregate principal
amount of its 5.25% Notes due 2028 (the "2028 Notes"). The Offering occurred on
November 15, 2021, pursuant to the Company's effective shelf registration
statement on Form N-2 previously filed with the SEC, as supplemented by a
preliminary prospectus supplement dated November 8, 2021, the pricing term sheet
dated November 9, 2021 and a final prospectus supplement dated November 9, 2021.
Effective November 16, 2021, the 2028 Notes began trading on the NASDAQ Global
Market under the trading symbol "PFXNZ."



On November 15, 2021, the Company and U.S. Bank National Association, as trustee
entered into a Fourth Supplemental Indenture to its base Indenture, dated
February 7, 2012, between the Company and the Trustee. The Fourth Supplemental
Indenture relates to the Offering of the 2028 Notes.



On November 15, 2021, the Company caused notices to be issued to the holders of
the 2023 Notes regarding the Company's exercise of its option to redeem
$55,325,000 in aggregate principal amount of the issued and outstanding 2023
Notes on December 16, 2021.



Subsequent to fiscal year ended September 30, 2021, the COVID-19 pandemic
continues and may further continue to have adverse consequences on the U.S. and
global economies. The ultimate economic fallout from the pandemic, and the
long-term impact on economies, markets, industries and individual portfolio
companies, remains uncertain. The Company cannot predict the extent to which its
financial condition and results of operations will be affected. The potential
impact to our results will depend to an extent on future developments and new
information that may emerge regarding the duration and lasting severity of
COVID-19. The Company continues to observe and respond to the evolving COVID-19
environment and its potential impact on areas across its business. Further, the
potential exists for additional variants of COVID-19, including the Omicron
variant, to impede the global economic recovery and exacerbate geographic
differences in the spread of, and response to, COVID-19.



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