Quarterly Report (10-q)

Share Name	Share Symbol	Market	Type
Great Elm Capital Corporation	NASDAQ:GECCN	NASDAQ	Common Stock

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.00	0.00%	25.20	21.61	26.42				0	00:00:00

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2020

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

Commission File Number: 814-01211

Great Elm Capital Corp.

(Exact name of registrant as specified in its charter)

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)

Registrant's telephone number, including area code: (617) 375-3006

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	GECC	Nasdaq Global Market
6.50% Notes due 2022	GECCL	Nasdaq Global Market
6.75% Notes due 2025	GECCM	Nasdaq Global Market
6.50% Notes due 2024	GECCN	Nasdaq Global Market

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

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

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

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

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

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

As of May 7, 2020, the registrant had 10,062,682 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	14
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information	16
Item 6.	Exhibits	17
	Signatures	18
	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 (unaudited)	F-6
	Notes to the Unaudited Consolidated Financial Statements	F-14

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, 2019 (our “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 (this “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.

PART I—FINANCIAL INFORMATION

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.

Cautionary Note Regarding Forward-Looking Information

Some of the statements in this report (including in the following discussion) constitute forward-looking statements, which relate to future events or our future performance or financial conditions. The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning:

▪

our, or our portfolio companies’, future business, operations, operating results or prospects;

▪

the return or impact of current and future investments;

▪

the impact of a protracted decline in the liquidity of credit markets on our business;

▪

the impact of fluctuations in interest rates on our business;

▪

the impact of changes in laws or regulations governing our operations or the operations of our portfolio companies;

▪

the impact of the current Coronavirus Disease 2019 (“COVID-19”) pandemic;

▪

our contractual arrangements and relationships with third parties;

▪

our current and future management structure;

▪

the general economy and its impact on the industries in which we invest;

▪

the financial condition of and ability of our current and prospective portfolio companies to achieve their objectives;

▪

our expected financings and investments;

▪

the adequacy of our financing resources and working capital;

▪

the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments;

▪

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

▪

the timing, form and amount of any dividend distributions;

▪

the valuation of any investments in portfolio companies, particularly those having no liquid trading market; and

▪

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

We use words such as “anticipate,” “believe,” “expect,” “intend,” “will,” “should,” “could,” “may,” “plan” and similar words to identify forward-looking statements. The forward-looking statements contained in this 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 under “Item 1A. Risk Factors.”

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. 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 (the “SEC”).

Item 1. Financial Statements.

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.

Overview

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 which are traded in the institutional credit markets. We invest primarily in the debt of middle-market companies as well as small businesses, generally in the form of senior secured and unsecured notes, as well as senior secured loans, junior loans and mezzanine debt. 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 investment 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. The Investment Management Agreement renews for successive annual periods, subject to requisite Board and/or stockholder approvals.

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.

Investments

Our level of investment activity can and does vary substantially from period to period depending on many factors, including, among others, the amount of debt and equity capital available from other sources to middle-market companies, 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 as well as 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.

Revenues

We generate revenue primarily from interest on the debt investments that we hold. We may also generate revenue from dividends on the equity investments that we hold, capital gains on the disposition of investments, and lease, fee, and 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 (“PIK”). 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.

Expenses

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. The 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 certain 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. In addition, our expenses include interest on our outstanding indebtedness.

Critical Accounting Policies

Valuation of Portfolio Investments

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. Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that (1) are independent of us; (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. We generally obtain market quotations from recognized exchanges, market quotation systems, independent pricing services or one or more broker-dealers or market makers. However, 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 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:

▪

The investment professionals of GECM provide recent portfolio company financial statements and other reporting materials to an independent valuation firm (or firms) approved by our Board;

▪

Such firms evaluate this information along with relevant observable market data to conduct independent appraisals each quarter, and their preliminary valuation conclusions are documented and discussed with senior management of GECM;

▪

The fair value of investments comprising in the aggregate less than 5% of our total capitalization and individually less than 1% of our total capitalization may be determined by GECM in good faith in accordance with our valuation policy without the employment of an independent valuation firm; and

▪

Our audit committee recommends, and our Board determines, the fair value of the investments in our portfolio in good faith based on the input of GECM, our independent valuation firms (to the extent applicable) and the business judgment of our audit committee and our Board, respectively.

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 we may take into account in determining the fair value of our 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 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 (“GAAP”) into three broad levels 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.

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

Revenue Recognition

Interest and dividend income, including 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.

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 specific identification method.

Net change in unrealized appreciation or depreciation reflects the net change in portfolio investment fair 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.

Portfolio and Investment Activity

The following is a summary of our investment activity for the years ended December 31, 2018 and 2019 and the three months ended March 31, 2020:

(in thousands)	Acquisitions⁽¹⁾		Dispositions⁽²⁾			Weighted Average Yield End of Period⁽³⁾
Quarter ended March 31, 2018		63,220		(29,069	)		14.80	%
Quarter ended June 30, 2018		37,927		(27,729	)		11.10	%
Quarter ended September 30, 2018		38,969		(37,991	)		11.60	%
Quarter ended December 31, 2018		34,849		(40,028	)		12.00	%
For the year ended December 31, 2018		174,965		(134,817	)

Quarter ended March 31, 2019		54,846		(59,869	)		11.30	%
Quarter ended June 30, 2019		62,238		(37,802	)		11.40	%
Quarter ended September 30, 2019		45,873		(44,531	)		11.00	%
Quarter ended December 31, 2019		14,800		(9,616	)		10.80	%
For the year ended December 31, 2019		177,757		(151,818	)

Quarter ended March 31, 2020		31,882		(29,420	)		10.00	%
For the Three Months Ended March 31, 2020		31,882		(29,420	)

⁽¹⁾	Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings and capitalized PIK income. Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, were excluded.

⁽²⁾	Includes scheduled principal payments, prepayments, sales, and repayments (inclusive of those on revolving credit facilities). Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, were excluded.

⁽³⁾

Weighted average yield is based upon the stated coupon rate and fair value of outstanding debt securities at the measurement date. Debt securities on non-accrual status are included in the calculation and are treated as having 0% as their applicable interest rate for purposes of this calculation, unless such debt securities are valued at zero.

Portfolio Reconciliation

The following is a reconciliation of the investment portfolio for the three months ended March 31, 2020 and the year ended December 31, 2019. Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, are excluded from the table below.

(in thousands)	For the Three Months Ended March 31, 2020			For the Year Ended December 31, 2019
Beginning Investment Portfolio	$	197,615		$	184,186
Portfolio Investments acquired⁽¹⁾		31,882			177,757
Amortization of premium and accretion of discount, net		1,754			5,982
Portfolio Investments repaid or sold⁽²⁾		(29,420	)		(151,818	)
Net change in unrealized appreciation (depreciation) on investments		(24,860	)		(19,792	)
Net realized gain (loss) on investments		(11,459	)		1,300
Ending Investment Portfolio	$	165,512		$	197,615

⁽¹⁾	Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings, and capitalized PIK income.

⁽²⁾	Includes scheduled principal payments, prepayments, sales, and repayments (inclusive of those on revolving credit facilities).

Portfolio Classification

The following table shows the fair value of our portfolio of investments by industry as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020					December 31, 2019
Industry	Investments at Fair Value		Percentage of Fair Value			Investments at Fair Value			Percentage of Fair Value
Wireless Telecommunications Services	$	35,986		21.74	%	$	40,578			20.53	%
Internet Media		18,978		11.47	%		15,923			8.06	%
Software Services		15,824		9.56	%		25,456			12.88	%
Food & Staples		13,133		7.93	%		20,975			10.61	%
Retail		9,904		5.98	%		13,470			6.82	%
Chemicals		9,560		5.78	%		6,917			3.50	%
Telecommunications Services		8,524		5.15	%		(928	)		(0.47	)%
Apparel & Textile Products		7,962		4.81	%		8,744			4.42	%
Construction Materials Manufacturing		7,849		4.74	%		7,792			3.94	%
Specialty Finance		7,645		4.62	%		7,726			3.91	%
Restaurants		6,057		3.66	%		11,972			6.06	%
Radio Broadcasting		5,943		3.59	%		7,795			3.94	%
Technology		3,736		2.26	%		-			-	%
Hotel Operator		3,516		2.12	%		3,361			1.70	%
Consulting		3,235		1.95	%		(458	)		(0.23	)%
Industrial		2,380		1.44	%		4,200			2.13	%
Communications Equipment		2,028		1.23	%		-			-	%
Real Estate Services		1,865		1.13	%		2,065			1.05	%
Consumer Finance		813		0.49	%		1,050			0.53	%
Building Cleaning and Maintenance Services		545		0.33	%		819			0.41	%
Maritime Security Services		29		0.02	%		30			0.02	%
Gaming, Lodging & Restaurants		-		-	%		12,127			6.14	%
Water Transport		-		-	%		8,001			4.05	%
Total	$	165,512		100.00	%	$	197,615			100.00	%

Results of Operations

This “—Results of Operations” discussion should be read in conjunction with the discussion of (“COVID-19”) under “—Recent Developments”.

Investment Income

	For the Three Months Ended March 31,
	2020				2019
	In Thousands		Per Share⁽¹⁾		In Thousands		Per Share⁽²⁾
Total Investment Income	$	6,429	$	0.64	$	6,313	$	0.59
Interest income		5,987		0.59		5,720		0.54
Dividend income		403		0.04		473		0.04
Other income		39		0.00		120		0.01

⁽¹⁾	The per share amounts are based on a weighted average of 10,062,682 outstanding common shares for the three months ended March 31, 2020.

⁽²⁾	The per share amounts are based on a weighted average of 10,641,734 outstanding common shares for the three months ended March 31, 2019.

Investment income consists of interest income, including net amortization of premium and accretion of discount on loans and debt securities, dividend income and other income, which primarily consists of amendment fees, commitment fees and funding fees on loans. For the three months ended March 31, 2020 and 2019, interest income includes non-cash PIK income of $1.2 million and $1.2 million, respectively.

During the three months ended March 31, 2020, two investments, Davidzon Radio, Inc. and PFS Holdings Corp., were put on nonaccrual status resulting in lower interest income for the current period than if interest payments had continued per the terms of each respective loan. Investments are expected to remain on non-accrual status absent an indication that interest payments will resume in the future.

As discussed under “—Recent Developments”, the full impact of COVID-19 on each of our portfolio companies is not known at this time. Depending on the duration and extent of the disruption to the operations of our portfolio companies, we expect that certain portfolio companies may experience financial distress and may be unable to make future interest payments or dividend distributions resulting in decreased income to the Company. In addition, the three months ended March 31, 2020 saw significant decreases in LIBOR, the primary base rate referenced in our floating rate debt investments. If interest rates stay depressed or continue to decrease further and we are otherwise unable to offset these reductions by investing in other debt instruments with higher interest rates we will see further decreases in our investment income.

Expenses

	For the Three Months Ended March 31,
	2020				2019
	In Thousands		Per Share⁽¹⁾		In Thousands		Per Share⁽²⁾
Total Expenses	$	3,777	$	0.38	$	3,529	$	0.33
Management fees		698		0.07		706		0.07
Incentive fees		100		0.01		696		0.07
Total advisory and management fees	$	798	$	0.08	$	1,402	$	0.13
Administration fees		204		0.02		211		0.02
Directors’ fees		51		0.01		50		0.00
Interest expense		2,305		0.23		1,454		0.14
Professional services		257		0.03		239		0.02
Custody fees		20		0.00		15		0.00
Other		142		0.01		158		0.01

⁽¹⁾	The per share amounts are based on a weighted average of 10,062,682 outstanding common shares for the three months ended March 31, 2020.

⁽²⁾	The per share amounts are based on a weighted average of 10,641,734 outstanding common shares for the three months ended March 31, 2019.

Expenses are largely comprised of advisory fees and administration fees paid to GECM and interest expense on our outstanding notes payable. See “—Liquidity and Capital Resources.” Advisory fees include management fees and incentive fees calculated in accordance with the Investment Management Agreement, and administration fees include direct costs reimbursable to GECM under the Administration Agreement and fees paid for sub-administration services.

Overall expenses for the three months ended March 31, 2020 increased as compared to the three months ended March 31, 2019 due to increased interest expense which was partially offset by a decrease in incentive fees. The increase in interest expense for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 is due to the issuance of $45.0 million in aggregate principal amount of 6.50% notes due 2024 (the “GECCN Notes”) in June and July 2019 which resulted in a weighted average outstanding debt balance of $124.0 million for the three months ended March 31, 2020 as compared to only $79.0 million for the three months ended March 31, 2019.

Incentive fees for the three months ended March 31, 2020 included a reversal of approximately $0.4 million in incentive fees accrued in prior periods. This reversal was primarily attributable to the sale of Commercial Barge Line Company (“Commercial Barge”) in February 2020, for which the resulting proceeds did not fully cover the accreted cost of the investment. Excluding the impact of the reversal, incentive fees would have been approximately $0.6 million for the three months ended March 31, 2020.

Realized Gains (Losses)

	For the Three Months Ended March 31,
	2020						2019
	In Thousands			Per Share⁽¹⁾			In Thousands			Per Share⁽²⁾
Net Realized Gain (Loss)	$	(11,313	)	$	(1.12	)	$	608		$	0.06
Gross realized gain		402			0.04			1,395			0.13
Gross realized loss		(11,715	)		(1.16	)		(787	)		(0.07	)

⁽¹⁾	The per share amounts are based on a weighted average of 10,062,682 outstanding common shares for the three months ended March 31, 2020.

⁽²⁾	The per share amounts are based on a weighted average of 10,641,734 outstanding common shares for the three months ended March 31, 2019.

During the three months ended March 31, 2020, net realized losses on investments were primarily driven by the sales of Commercial Barge and Full House Resorts, Inc. (“Full House”) during the quarter, for which we recognized realized losses of $9.8 million and $1.3 million, respectively. Realized gains for the three months ended March 31, 2020 includes approximately $0.1 in realized gain on repurchases of debt below par.

During the three months ended March 31, 2019, net realized gains were primarily driven by the sale of International Wire Group, Inc. which resulted in a realized gain of approximately $1.1 million.

Unrealized Appreciation (Depreciation) on Investments

	For the Three Months Ended March 31,
	2020						2019
	In Thousands			Per Share⁽¹⁾			In Thousands			Per Share⁽²⁾
Net unrealized appreciation/depreciation	$	(24,877	)	$	(2.47	)	$	4,676		$	0.44
Unrealized appreciation		9,095			0.90			7,238			0.68
Unrealized depreciation		(33,972	)		(3.38	)		(2,562	)		(0.24	)

⁽¹⁾	The per share amounts are based on a weighted average of 10,062,682 outstanding common shares for the three months ended March 31, 2020.

⁽²⁾	The per share amounts are based on a weighted average of 10,641,734 outstanding common shares for the three months ended March 31, 2019.

During the three months ended March 31, 2020, net unrealized depreciation was largely driven by decreases in portfolio company valuations as compared to the prior year end. Most notably, we recognized unrealized depreciation of approximately $4.0 million on our investment in Avanti Communications Group, plc (“Avanti”) 2^nd lien secured bond, approximately $3.6 million on our investment in Tru (UK) Asia Limited (“Tru”) common equity and approximately $3.4 million and $2.6 million on our investment in California Pizza Kitchen, Inc. (“CPK”) 1^st lien loan and 2^nd lien loan, respectively. The Avanti, Tru and CPK investments are all level 3 investments for which the valuations include unobservable inputs such as discount rates and comparable company multiples which have experienced decreases as of March 31, 2020 as compared to December 31, 2019 due to general market volatility, including the impact of the COVID-19 pandemic during the three months ended March 31, 2020. Additionally, we recognized unrealized losses of $2.3 million and $2.7 million on our investments in Finastra Group Holdings, Ltd. and ASP Chromaflo Technologies Corp., both of which were valued at March 31, 2020 based on active market prices.

Unrealized appreciation for the three months ended March 31, 2020 was primarily due to the sale of Commercial Barge in February 2020, for which we realized approximately $6.3 million of previously unrealized losses.

For the three months ended March 31, 2019 we had a net increase in unrealized appreciation which was largely driven by higher valuations of our portfolio investments as compared to the prior year end. Most notably, we recognized unrealized appreciation of $3.1 million on our investment in Avanti and unrealized appreciation of $0.5 million on our investment in Finastra Group Holdings, Ltd. In addition, the restructuring of our investment in Tru Taj, LLC (“Tru Taj”) and the subsequent valuation of the resulting common stock in TRU (UK) Asia Limited and TRU (UK) Asia Limited Liquidating Trust we received in such restructuring in exchange for Tru Taj debt securities, resulted in net unrealized appreciation of approximately $1.0 million.

As discussed under “—Recent Developments”, we cannot predict the duration of the COVID-19 pandemic and the resulting impact to our individual portfolio companies or the broader market. It is likely that any recovery may be slow and/or volatile. The current unrealized depreciation on our portfolio may not be reversed in the short-term or at all and we may see further declines in fair value before the pandemic is over.

Liquidity and Capital Resources

This “—Liquidity and Capital Resources” discussion should be read in conjunction with the discussion of COVID-19 under “—Recent Developments”.

At March 31, 2020, we had approximately $22.8 million of cash and cash equivalents, none of which was restricted in nature.

At March 31, 2020, we had investments in 28 debt instruments across 24 companies, totaling approximately $146.7 million at fair value and seven equity investments in six companies, totaling approximately $18.8 million 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 March 31, 2020, we had approximately $21.9 million 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 March 31, 2020 balance sheet to satisfy the unfunded commitments.

For the three months ended March 31, 2020, net cash provided by operating activities was approximately $21.4 million, reflecting the purchases and repayments of investments offset by net investment income, including non-cash income related to accretion of discount and PIK income and proceeds from sales of investments and principal payments received. Net cash provided by purchases and proceeds from sales of investments was approximately $11.6 million, reflecting payments for additional investments of $12.1 million, offset by proceeds from principal repayments and sales of $23.7 million. Such amounts include draws and repayments on revolving credit facilities.

For the three months ended March 31, 2020, net cash used for financing activities was $3.1 million, which consisted of $3.0 million in distributions to investors and $0.1 million in repurchases of our debt.

Contractual Obligations

A summary of our significant contractual payment obligations as of March 31, 2020 is as follows:

(in thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Contractual Obligations
GECCL Notes	$	32,404	$	-	$	32,404	$	-	$	-
GECCM Notes		46,352		-		-		46,352		-
GECCN Notes		44,998		-		-		44,998		-
Total	$	123,754	$	-	$	32,404	$	91,350	$	-

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.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices, as of and for the three months ended March 31, 2020.

Notes Payable

On September 13, 2017, we sold $28.4 million in aggregate principal amount of 6.50% notes due 2022 (the "GECCL Notes"). On September 29, 2017, we sold an additional $4.3 million 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 the GECCL Notes outstanding is $32.4 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 $43.0 million 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 $1.9 million and $1.5 million, respectively, 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 the 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.

On June18, 2019, we sold $42.5 million in aggregate principal amount of the GECCN Notes, which included $2.5 million of GECCN Notes sold in connection with the partial exercise of the underwriters’ over-allotment option. On July 5, 2019, we sold an additional $2.5 million of the GECCN Notes upon another partial exercise of the underwriters’ over-allotment option. As a result of the issuance of these additional GECCN Notes, the aggregate principal balance of the GECCN Notes outstanding is $45.0 million.

The GECCN Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The GECCN 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 GECCN Notes on March 31, June 30, September 30 and December 31 of each year beginning September 30, 2019. The GECCN Notes will mature on June 30, 2024 and can be called on, or after, June 30, 2021. Holders of the GECCN Notes do not have the option to have the GECCN Notes repaid prior to the stated maturity date. The GECCN Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.

We may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder. During the three months ended March 31, 2020, we repurchased $0.2 million in principal amount of the GECCL Notes, less than $0.1 million in principal amount of the GECCM Notes and less than $0.1 million in principal amount of the GECCN Notes.

As of March 31, 2020, our asset coverage ratio was approximately 141.1%. We are subject to a minimum asset coverage ratio of 150% (the “Minimum ACR”). As of a result of falling below the Minimum ACR, we will be subject to certain limitations on our ability to incur additional debt, make cash distributions on junior securities or repurchase junior securities, in each case, in accordance with the Investment Company Act of 1940, as amended and the indentures governing our outstanding notes, until such time we are above the Minimum ACR.

Recent Developments

In April 2020:

•

we bought $0.6 million of par value of Apache Corporation unsecured bond at approximately 86% of par value.

•

$2.0 million of par value of Viasat, Inc. receivable was redeemed at 100% of par value.

•

$5.0 million of par value of Duff & Phelps 1^st lien revolver was redeemed at 100% of par value.

•

we bought $2.0 million of par value of Viasat, Inc. receivable at 90% of par value.

•

we bought $1.0 million of par value of Avanti Communications Group, plc 1.25 lien delayed draw term loan at 100% of par value.

•

we sold $2.0 million of par value of Finastra Group Holdings, Ltd at 85% of par value.

•

we sold $2.0 million of par value of Mitchell International, Inc. at 85% of par value.

COVID-19

The recent global outbreak of the COVID-19 has disrupted economic markets and the economic impact, duration and spread of the COVID-19 virus is uncertain at this time. The operational and financial performance of some of the portfolio companies in which we make investments has been and may further be significantly impacted by COVID-19, which may in turn impact the valuation of our investments, results of our operations and cash flows. For example, we do not currently meet the minimum asset coverage ratio of 150% due to the devaluation of the assets of our portfolio companies. See “—Liquidity and Capital Resources” above.

Our investment manager prioritizes the health and safety of employees and in early March 2020, GECM moved to a remote-working model for all employees. In addition, the officers of GECC have maintained regular communications with key service providers, including the fund administration, legal and accounting professionals, noting that those firms have similarly moved to remote-working models to the extent possible. Our employees and key service providers have been able to effectively transition to working remotely while maintaining a consistent level of capabilities and service, however, we will continue to monitor and make adjustments as necessary.

While we have been carefully monitoring the COVID-19 pandemic and its impact on our business and the business of our portfolio companies, we have continued to fund our existing debt commitments. In addition, we have continued to make, and expect to continue to make, new investments.

We cannot predict the full impact of the COVID-19 pandemic, including its duration in the United States and worldwide and the magnitude of the economic impact of the outbreak, including with respect to the travel restrictions, business closures and other quarantine measures imposed on service providers and other individuals by various local, state, and federal governmental authorities, as well as non-U.S. governmental authorities. As such, we are unable to predict the duration of any business and supply-chain disruptions, the extent to which the COVID-19 pandemic will negatively affect our portfolio companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition. Our portfolio is diversified across multiple industries and the direct and indirect impacts of the COVID-19 pandemic will be dependent on the specific circumstances for each portfolio company. For example, companies that derive revenues through in-person interactions with customers, such as restaurants and retail stores, have been and may be subject to reduced capacity or shutdowns based on local government advisories and regulations. Other companies may be better able to adapt to the changing environment by moving their workforce to a remote-working model and leveraging technology solutions to interact with customers.

Depending on the duration and extent of the disruption to the operations of our portfolio companies, we expect that certain portfolio companies may experience financial distress and possibly default on their financial obligations to us and their other capital providers. We also expect that some of our portfolio companies may significantly curtail business operations, furlough or lay off employees and terminate service providers, and defer capital expenditures if subjected to prolonged and severe financial distress, which would likely impair their business on a permanent basis. These developments would likely result in a decrease in the value of our investment in any such portfolio company.

The COVID-19 pandemic and the related disruption and financial distress experienced by our portfolio companies may have material adverse effects on our investment income, particularly our interest income, received from our investments. In connection with the adverse effects of the COVID-19 pandemic, we may need to restructure our investments in some of our portfolio companies, which could result in reduced interest payments, an increase in the amount of PIK interest we receive, or result in permanent write-downs on our investments.

We have had a significant reduction in our net asset value as of March 31, 2020 as compared to our net asset value as of December 31, 2019. The decrease in net asset value as of March 31, 2020 was largely the result of decreases in the fair value of some of our portfolio company investments primarily due to the immediate adverse economic effects of the COVID-19 pandemic and the continuing uncertainty surrounding its long-term impact, as well as the re-pricing of credit risk in the broadly syndicated credit market.

We are also subject to financial risks, including changes in market interest rates. As of March 31, 2020, approximately $158.3 million in principal amount of our debt investments bore interest at variable rates, which are generally based on LIBOR, and many of which are subject to certain floors. In connection with the COVID-19 pandemic, the U.S. Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased. A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR are not offset by a corresponding increase in the spread over LIBOR that we earn on any portfolio investments or a decrease in our operating expenses. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for an analysis of the impact of hypothetical base rate changes in interest rates.

We will continue to monitor the rapidly evolving situation relating to the COVID-19 pandemic and guidance from U.S. and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our plan of operation. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. To the extent our portfolio companies are adversely impacted by the effects of the COVID-19 pandemic, it may have a material adverse impact on our future net investment income, the fair value of our portfolio investments, its financial condition and the results of operations and financial condition of our portfolio companies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in interest rates. As of March 31, 2020, five debt investments in our portfolio bore interest at a fixed rate, and the remaining 23 debt investments were at variable rates, representing approximately $70.9 million and $158.3 million in principal debt, respectively. As of December 31, 2019, five debt investments in our portfolio bore interest at a fixed rate, and the remaining 23 debt investments were at variable rates, representing approximately $71.9 million and $174.3 million in principal debt, 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 net investment 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 March 31, 2020. We have also assumed that there are no outstanding floating rate borrowings by the Company. See the following table for the effect the rate changes would have on net investment income.

LIBOR Increase (Decrease)	Increase (decrease) of Net Investment Income
3.00%	$	3,373
2.00%		2,248
1.00%		1,124
(1.00)%		(750	)
(2.00)%		(797	)
(3.00)%		(797	)

Although we believe that this analysis is indicative of our existing interest rate sensitivity at March 31, 2020, it does not adjust for changes in the credit quality, size and composition of our portfolio, and other business developments, including borrowing under a credit facility, that could affect the net increase in net assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ materially from the results under this hypothetical analysis.

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of March 31, 2020, 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 Securities and Exchange Act of 1934, as amended (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.

Changes in Internal Controls Over Financial Reporting

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 three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

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. There have been no material updates to the legal proceedings previously disclosed in our Form 10-K.

Item 1A. Risk Factors.

In addition to the risk factors set forth below and other information set forth in this report, you should carefully consider the “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which could materially affect our business, financial condition and/or operating results.

Events outside of our control, including public health crises such as the ongoing COVID-19 pandemic, may negatively affect our results of operations and financial performance. If COVID-19 continues to spread in the United States, we expect to experience disruptions that could adversely impact our business. It is unknown how long these disruptions could continue, were they to occur. The outbreak of COVID‑19 may also have a material adverse impact on the ability of our portfolio companies to fulfill their end customers’ orders due to supply chain delays, limited access to key commodities or technologies or other events that impact their manufacturers or their suppliers. Such events have affected, and may in the future affect our business, financial condition or results of operations. As the global outbreak of COVID-19 continues to rapidly evolve, the extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted. The continuing spread of an infectious respiratory illness caused by COVID-19 has caused volatility, severe market dislocations and liquidity constraints in many markets, including investments the Company holds, and may adversely affect the Company’s investments and operations. The outbreak was first detected in December 2019 and subsequently spread globally. On March 11, 2020, the World Health Organization declared COVID-19 as a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19. The transmission of COVID-19 and efforts to contain its spread have resulted in travel restrictions and disruptions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, quarantines, event and service cancellations or interruptions, disruptions to business operations (including staff reductions), supply chains and consumer activity, as well as general concern and uncertainty that has negatively affected the economic environment. These disruptions have led to instability in the market place, including stock market losses and overall volatility. The impact of COVID-19, and other infectious illness outbreaks, epidemics or pandemics that may arise in the future, could adversely affect the economies of many nations or the entire global economy, the financial performance of individual issuers, borrowers and sectors and the health of the markets generally in potentially significant and unforeseen ways. In addition, the impact of infectious illnesses, such as COVID-19, in emerging market countries may be greater due to generally less established healthcare systems. This crisis or other public health crises may exacerbate other pre-existing political, social and economic risks in certain countries or globally.

The foregoing could lead to a significant economic downturn or recession, increased market volatility, a greater number of market closures, higher default rates and adverse effects on the values and liquidity of securities or other assets. Such impacts, which may vary across asset classes, may adversely affect the performance of the Company’s investments, the Company and your investment in the Company. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in the Company being, among other things, unable to buy or sell certain securities or financial instruments or to accurately price their investments.

The Company and the investment manager have taken steps reasonably designed to ensure that they maintain normal business operations, and that the Company, its portfolio and assets are protected. However, in the event of a pandemic or an outbreak, such as COVID-19, there can be no assurance that the Company, the Investment Advisor and service providers, or the Company’s portfolio companies, will be able to maintain normal business operations for an extended period of time or will not lose the services of key personnel on a temporary or long-term basis due to illness or other reasons. A pandemic or disease could also impair the information technology and other operational systems upon which the investment manager relies and could otherwise disrupt the ability of the Company’s service providers to perform essential tasks.

Governmental authorities and regulators throughout the world, such as the U.S. Federal Reserve, have in the past responded to major economic disruptions with changes to fiscal and monetary policy, including but not limited to, direct capital infusions, new monetary programs and dramatically lower interest rates. Certain of those policy changes, such as the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020, are being implemented in response to the COVID-19 pandemic. Such policy changes may adversely affect the value, volatility and liquidity of dividend and interest paying securities. The effect of recent efforts undertaken by the U.S. Federal Reserve to address the economic impact of the COVID-19 pandemic, such as the reduction of the federal funds target rate, and other monetary and fiscal actions that may be taken by the U.S. federal government to stimulate the U.S. economy, are not yet fully known. The duration of the COVID-19 outbreak and its full impacts are unknown, resulting in a high degree of uncertainty for potentially extended periods of time.

We are currently operating in a period of capital markets disruption and economic uncertainty. The U.S. capital markets have experienced extreme volatility and disruption following the global outbreak of COVID-19 that began in December 2019. Some economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a world-wide economic downturn. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. These and future market disruptions and/or illiquidity would be expected to have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions also would be expected to increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events have limited and could continue to limit our investment originations, limit our ability to grow and have a material negative impact on our operating results and the fair values of our debt and equity investments.

If the current period of capital market disruption and instability continues for an extended period of time, there is a risk that our stockholders may not receive distributions or that our distributions may not grow over time. We intend to make distributions 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 make a specified level of cash distributions or year-to-year increases in distributions. Our ability to pay distributions might be adversely affected by the impact of one or more of the risk factors described in this quarterly report on Form 10-Q or incorporated herein by reference, including the COVID-19 pandemic described above. For example, if the temporary closure of many corporate offices, retail stores, and manufacturing facilities and factories in the jurisdictions, including the United States, affected by the COVID-19 pandemic were to continue for an extended period of time it could result in reduced cash flows to us from our existing portfolio companies, which could reduce cash available for distribution to our stockholders. In addition, due to the asset coverage test applicable to us as a BDC, we may be limited in our ability to make cash distributions. Further, if we invest a greater amount of assets in equity securities that do not pay current dividends, it could reduce the amount available for distribution. The above referenced restrictions on distributions may also inhibit our ability to make required interest payments to holders of our debt, which may cause a default under the terms of our debt agreements. Such a default could materially increase our cost of raising capital, as well as cause us to incur penalties under the terms of our debt agreements.

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

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

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.

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, as trustee (the “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)

4.8		Third Supplemental Indenture, dated as of June 18, 2019, 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. 333-227605) filed on June 18, 2019)

4.9		Global Note, dated June 18, 2019 (incorporated by reference to Exhibit (d)(1) to the post-effective amendment to the Registration Statement on Form N-2 (File No. 333-227605) filed on June 18, 2019)

10.1*		Custody Agreement, dated as of January 2, 2020, by and between the Registrant and U.S. Bank National Association

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

*	Filed herewith

SIGNATURES

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.

	GREAT ELM CAPITAL CORP.

Date: May 11, 2020	By:	/s/ Peter A. Reed
	Name:	Peter A. Reed
	Title:	Chief Executive Officer

Date: May 11, 2020	By:	/s/ Keri A. Davis
	Name:	Keri A. Davis
	Title:	Chief Financial Officer

GREAT ELM CAPITAL CORP.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Assets and Liabilities as of March 31, 2020 and December 31, 2019 (unaudited)		F-2
Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (unaudited)		F-3
Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2020 and 2019 (unaudited)		F-4
Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)		F-5
Consolidated Schedule of Investments as of March 31, 2020 and December 31, 2019 (unaudited)		F-6
Notes to the Unaudited Consolidated Financial Statements		F-6

F-1

GREAT ELM CAPITAL CORP.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (unaudited)

Dollar amounts in thousands (except per share amounts)

	March 31, 2020			December 31, 2019
Assets
Investments
Non-affiliated, non-controlled investments, at fair value (amortized cost of $161,050 and $168,269, respectively)	$	120,494		$	147,412
Non-affiliated, non-controlled short-term investments, at fair value (amortized cost of $74,994 and $85,733, respectively)		74,978			85,733
Affiliated investments, at fair value (amortized cost of $103,196 and $102,704, respectively)		36,015			40,608
Controlled investments, at fair value (amortized cost of $10,086 and $10,601, respectively)		9,003			9,595
Total investments		240,490			283,348

Cash and cash equivalents		22,837			4,606
Receivable for investments sold		5,639			-
Interest receivable		3,519			2,350
Dividends receivable		400			14
Due from portfolio company		660			617
Due from affiliates		15			15
Prepaid expenses and other assets		49			89
Total assets	$	273,609		$	291,039

Liabilities
Notes payable 6.50% due September 18, 2022 (including unamortized discount of $756 and $839, respectively)	$	31,648		$	31,792
Notes payable 6.75% due January 31, 2025 (including unamortized discount of $1,255 and $1,321, respectively)		45,097			45,078
Notes payable 6.50% due June 30, 2024 (including unamortized discount of $1,953 and $2,058, respectively)		43,045			42,942
Payable for investments purchased		92,222			72,749
Interest payable		359			354
Distributions payable		835			1,338
Accrued incentive fees payable		8,257			8,157
Due to affiliates		855			997
Accrued expenses and other liabilities		446			743
Total liabilities	$	222,764		$	204,150

Commitments and contingencies (Note 6)	$	-		$	-

Net Assets
Common stock, par value $0.01 per share (100,000,000 shares authorized, 10,062,682 shares issued and outstanding and 10,062,682 shares issued and outstanding, respectively)	$	101		$	101
Additional paid-in capital		193,114			193,114
Accumulated losses		(142,370	)		(106,326	)
Total net assets	$	50,845		$	86,889
Total liabilities and net assets	$	273,609		$	291,039
Net asset value per share	$	5.05		$	8.63

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

F-2

GREAT ELM CAPITAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Dollar amounts in thousands (except per share amounts)

	For the Three Months Ended March 31,
	2020			2019
Investment Income:
Interest income from:
Non-affiliated, non-controlled investments	$	4,466		$	3,849
Affiliated investments		227			198
Affiliated investments (PIK)		1,224			875
Controlled investments		70			514
Controlled investments (PIK)		-			284
Total interest income		5,987			5,720
Dividend income from:
Non-affiliated, non-controlled investments		3			73
Controlled investments		400			400
Total dividend income		403			473
Other income from:
Non-affiliated, non-controlled investments		30			100
Controlled investments		9			20
Total other income		39			120
Total investment income	$	6,429		$	6,313

Expenses:
Management fees	$	698		$	706
Incentive fees		100			696
Administration fees		204			211
Custody fees		20			15
Directors’ fees		51			50
Professional services		257			239
Interest expense		2,305			1,454
Other expenses		142			158
Total expenses	$	3,777		$	3,529
Net investment income	$	2,652		$	2,784

Net realized and unrealized gains (losses):
Net realized gain (loss) on investment transactions from:
Non-affiliated, non-controlled investments	$	(11,456	)	$	608
Affiliated investments		-			-
Controlled investments		-			-
Repurchase of debt		143			-
Total net realized gain (loss)		(11,313	)		608
Net change in unrealized appreciation (depreciation) on investment transactions from:
Non-affiliated, non-controlled investments		(19,715	)		2,143
Affiliated investments		(5,085	)		3,123
Controlled investments		(77	)		(590	)
Total net change in unrealized appreciation (depreciation)		(24,877	)		4,676
Net realized and unrealized gains (losses)	$	(36,190	)	$	5,284
Net increase (decrease) in net assets resulting from operations	$	(33,538	)	$	8,068

Net investment income per share (basic and diluted):	$	0.26		$	0.26
Earnings per share (basic and diluted):	$	(3.33	)	$	0.76
Weighted average shares outstanding (basic and diluted):		10,062,682			10,641,734

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

F-3

GREAT ELM CAPITAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

Dollar amounts in thousands

	For the Three Months Ended March 31,
	2020			2019
Increase (decrease) in net assets resulting from operations:
Net investment income	$	2,652		$	2,784
Net realized gain (loss)		(11,313	)		608
Net change in unrealized appreciation (depreciation) on investments		(24,877	)		4,676
Net increase (decrease) in net assets resulting from operations		(33,538	)		8,068

Distributions to stockholders:
Distributions⁽¹⁾		(2,506	)		(2,637	)
Total distributions to stockholders		(2,506	)		(2,637	)

Capital transactions:
Purchases of common stock		-			(1,593	)
Net increase (decrease) in net assets resulting from capital transactions		-			(1,593	)
Total increase (decrease) in net assets		(36,044	)		3,838
Net assets at beginning of period	$	86,889		$	110,116
Net assets at end of period	$	50,845		$	113,954

Capital share activity
Shares outstanding at the beginning of the period		10,062,682			10,652,401
Shares purchased		-			(192,000	)
Shares outstanding at the end of the period		10,062,682			10,460,401

(1)	Distributions were from net investment income for each of the periods presented.

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

F-4

GREAT ELM CAPITAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Dollar amounts in thousands

	For the Three Months Ended March 31,
	2020			2019
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations	$	(33,538	)	$	8,068
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities:
Purchases of investments		(12,145	)		(47,920	)
Net change in short-term investments		10,739			(17,283	)
Capitalized payment-in-kind interest		(265	)		(279	)
Proceeds from sales of investments		22,740			59,348
Proceeds from principal payments		1,041			10,241
Net realized (gain) loss on investments		11,459			(608	)
Net change in unrealized (appreciation) depreciation on investments		24,877			(4,676	)
Amortization of premium and accretion of discount, net		(1,754	)		(1,272	)
Net realized gain on repurchase of debt		(143	)		-
Amortization of discount (premium) on long term debt		253			140
Increase (decrease) in operating assets and liabilities:
(Increase) decrease in interest receivable		(1,169	)		97
(Increase) decrease in dividends receivable		(386	)		(424	)
(Increase) decrease in due from portfolio company		(43	)		-
(Increase) decrease in due from affiliates		-			(10	)
(Increase) decrease in prepaid expenses and other assets		40			23
Increase (decrease) in due to affiliates		(42	)		574
Increase (decrease) in interest payable		5			-
Increase (decrease) in accrued expenses and other liabilities		(297	)		24
Net cash provided by (used for) operating activities		21,372			6,043
Cash flows from financing activities
Purchases of common stock		-			(1,593	)
Purchases of debt		(132	)		-
Distributions paid		(3,009	)		(5,210	)
Net cash provided by (used for) financing activities		(3,141	)		(6,803	)
Net increase (decrease) in cash		18,231			(760	)
Cash, beginning of period		4,606			4,167
Cash, end of period	$	22,837		$	3,407

Supplemental disclosure of non-cash financing activities:
Distributions declared, not yet paid	$	835		$	868
Supplemental disclosure of cash flow information:
Cash paid for excise tax	$	233		$	171
Cash paid for interest		2,044			1,313

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

F-5

GREAT ELM CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)

March 31, 2020

Dollar amounts in thousands

Portfolio Company	Industry	Security⁽¹⁾	Notes	Interest Rate⁽²⁾	Initial Acquisition Date	Maturity	Par Amount / Quantity		Cost			Fair Value
Investments at Fair Value
APTIM Corp.	Industrial	1st Lien, Secured Bond	11	7.75%	03/28/2019	06/15/2025		7,000		5,674			2,380
ASP Chromaflo Technologies Corp.	Chemicals	2nd Lien, Secured Loan		1M L + 8.00%, 9.00% Floor (9.00%)	08/12/2019	11/18/2024		12,416		12,069			9,560
Avanti Communications Group, plc	Wireless Telecommunications Services	1.5 Lien, Secured Bond	4, 5, 6, 10, 11, 12	12.50%	05/24/2019	05/24/2021		8,678		8,678			8,678
Avanti Communications Group, plc	Wireless Telecommunications Services	2nd Lien, Secured Bond	4, 5, 6, 10, 11	9.00%	11/03/2016	10/01/2022		42,467		39,618			26,053
Avanti Communications Group, plc	Wireless Telecommunications Services	Common Equity	4, 5, 7, 10	n/a	11/03/2016	n/a		196,086,410		50,660			1,255
Best Western Luling	Hotel Operator	1st Lien, Secured Loan	5, 8, 9	1M L + 12.00%, 12.25% Floor (0.00%)	11/03/2016	12/18/2017		2,715		1,300			3,516
Boardriders, Inc.	Apparel & Textile Products	1st Lien, Secured Loan	5	3M L + 6.50%, 7.50% Floor (8.28%)	03/28/2019	04/06/2024		8,939		8,803			7,962
California Pizza Kitchen, Inc.	Restaurants	1st Lien, Secured Loan	5	3M L + 6.00%, 7.00% Floor (7.62%)	03/26/2019	08/23/2022		9,897		9,668			5,167
California Pizza Kitchen, Inc.	Restaurants	2nd Lien, Secured Loan	5	3M L + 10.00%, 11.00% Floor (11.62%)	07/17/2019	08/23/2023		4,300		4,092			890
Davidzon Radio, Inc.	Radio Broadcasting	1st Lien, Secured Loan	5, 8, 9	1M L + 10.00%, 11.00% Floor (0.00%)	11/03/2016	03/31/2020		8,962		8,962			5,943
Duff & Phelps	Consulting	1st Lien, Revolver	5	1M L + 3.25%, 3.25% Floor (4.23%)	09/09/2019	02/13/2022		3,250		2,813			3,240
Duff & Phelps	Consulting	1st Lien, Revolver - Unfunded	5	0.50%	09/09/2019	02/13/2022		1,750		-			(5	)
Endurance International Group Holdings Inc	Technology	1st Lien, Secured Revolver	5, 10	3M L +4.00%, 4.00% Floor	02/19/2020	02/09/2021		-		(80	)		-
Endurance International Group Holdings Inc	Technology	1st Lien, Secured Revolver - Unfunded	5, 10	0.50%	02/19/2020	02/09/2021		4,000		-			(94	)
The Finance Company	Consumer Finance	1st Lien, Secured Revolver	3, 5	1M L + 11.00%, 11.50% Floor (12.52%)	11/03/2016	07/02/2020		569		569			569
The Finance Company	Consumer Finance	1st Lien, Secured Term Loan B	3, 5	1M L + 11.00%, 11.50% Floor (12.52%)	06/08/2018	07/02/2020		1,491		1,491			244
The Finance Company	Consumer Finance	Common Equity	3, 5, 7	n/a	06/08/2018	n/a		288,000		-			-
Finastra Group Holdings, Ltd.	Software Services	2nd Lien, Secured Loan	10	3M L + 7.25%, 8.25% Floor (9.03%)	12/14/2017	06/13/2025		10,000		9,457			7,420
Greenway Health, LLC	Technology	1st Lien, Secured Revolver	5	3M L + 3.75%, 3.75% Floor (4.95%)	01/27/2020	02/17/2022		2,809		2,006			1,908
Greenway Health, LLC	Technology	1st Lien, Secured Revolver - Unfunded	5	0.50%	01/27/2020	02/17/2022		5,217		-			(1,673	)
Mitchell International, Inc.	Software Services	2nd Lien, Secured Loan	5	1M L + 7.25%, 7.25% Floor (8.23%)	08/02/2019	12/01/2025		10,000		9,438			8,404
OPS Acquisitions Limited and Ocean Protection Services Limited	Maritime Security Services	1st Lien, Secured Loan	4, 5, 8, 10	1M L + 12.00%, 12.50% Floor (0.00%)	11/03/2016	06/01/2018		4,903		4,240			29
OPS Acquisitions Limited and Ocean Protection Services Limited	Maritime Security Services	Common Equity	4, 5, 7, 10	n/a	11/03/2016	n/a		19		-			-

F-6

PE Facility Solutions, LLC	Building Cleaning and Maintenance Services	1st Lien, Secured Loan B	3, 5, 6, 8	1M L + 14.00%, (0.00%)	02/28/2017	02/27/2022	560		560		545
PE Facility Solutions, LLC	Building Cleaning and Maintenance Services	Common Equity	3, 5, 7	n/a	02/28/2017	n/a	1		-		-
PEAKS Trust 2009-1	Consumer Finance	1st Lien, Secured Note	5, 8, 10	1M L + 5.50%, 7.50% Floor (0.00%)	11/03/2016	01/27/2020	940		849		-
Perforce Software, Inc.	Technology	1st Lien, Secured Revolver	5	3M L + 4.25%, 4.25% (5.48%)	01/24/2020	07/01/2024	4,375		4,014		3,595
PFS Holdings Corp.	Food & Staples	1st Lien, Secured Loan	5, 8	3M L + 3.50%, 4.50% Floor (0.00%)	07/09/2018	01/31/2021	14,821		12,378		8,226
Prestige Capital Finance, LLC	Specialty Finance	Common Equity	3, 5, 10	n/a	02/08/2019	n/a	100		7,466		7,645
Research Now Group, Inc.	Internet Media	1st Lien, Secured Revolver	5	3M L + 4.50%, 4.50% Floor (5.88%)	01/29/2019	12/20/2022	8,000		7,429		7,652
Research Now Group, Inc.	Internet Media	1st Lien, Secured Revolver - Unfunded	5	0.50%	01/29/2019	12/20/2022	2,000		-		(201	)
Research Now Group, Inc.	Internet Media	2nd Lien, Secured Loan	5	3M L + 9.50%, 10.50% Floor (11.26%)	05/20/2019	12/20/2025	12,000		11,955		11,527
Shearer's Foods, LLC	Food & Staples	2nd Lien, Secured Loan	5	1M L + 6.75%, 7.75% Floor (7.75%)	06/17/2019	06/30/2022	5,000		4,975		4,907
Subcom, LLC	Telecommunications Services	1st Lien, Secured Revolver	5	3M L + 5.00%, 5.00% Floor (5.78%)	11/21/2019	11/02/2023	10,000		8,475		8,524
Tallage Davis, LLC	Real Estate Services	1st Lien, Secured Loan	5	11.00%	03/20/2018	01/26/2023	1,865		1,865		1,865
Tallage Davis, LLC	Real Estate Services	1st Lien, Secured Loan - Unfunded	5	n/a	03/20/2018	01/26/2023	8,910		-		-
Tensar Corp.	Construction Materials Manufacturing	1st Lien, Secured Loan		3M L + 4.75%, 5.75% Floor (6.20%)	06/27/2019	07/10/2021	9,372		9,053		7,849
TRU (UK) Asia Limited	Retail	Common Equity	5, 7, 10	n/a	07/21/2017	n/a	776,954		22,132		8,430
TRU (UK) Asia Limited Liquidating Trust	Retail	Common Equity	5, 7	n/a	07/21/2017	n/a	16,000		1,723		1,474
Viasat, Inc.	Communications Equipment	Receivable	5	n/a	01/17/2020	04/01/2020	2,000		2,000		2,028
Total Investments excluding Short-Term Investments (325.52% of Net Assets)									274,332		165,512
Short-Term Investments
United States Treasury		Treasury Bill		0%		07/02/2020	75,000		74,994		74,978
Total Short-Term Investments (147.46% of Net Assets)									74,994		74,978
TOTAL INVESTMENTS (472.99% of Net Assets)			13					$	349,326	$	240,490
Other Liabilities in Excess of Assets (372.99% of Net Assets)										$	(189,645	)
NET ASSETS										$	50,845

(1)

The Company’s investments are generally acquired in private transactions exempt from registration under the Securities Act of 1933 and, therefore, are generally subject to limitations on resale, and may be deemed to be “restricted securities’’ under the Securities Act of 1933.

(2)

A majority of the Company’s variable rate debt investments bear interest at a rate that is determined by reference to London Interbank Offered Rate (‘‘LIBOR” or “L”) and which is reset daily, monthly, quarterly or semiannually. For each debt investment, the Company has provided the interest rate in effect as of period end. If no reference to LIBOR is made, the rate is fixed. A floor is the minimum rate that will be applied in calculating an interest rate. A cap is the maximum rate that will be applied in calculating an interest rate. The one month (“1M”) LIBOR as of period end was 0.99%. The three month (“3M”) LIBOR as of period end was 1.45%. The six month (“6M”) LIBOR as of period end was 1.18%.

(3)

‘‘Controlled Investments’’ are investments in those companies that are ‘‘Controlled Investments’’ of the Company, as defined in the Investment Company Act. A company is deemed to be a ‘‘Controlled Investment’’ of the Company if the Company owns more than 25% of the voting securities of such company.

F-7

(4)

‘‘Affiliate Investments’’ are investments in those companies that are ‘‘Affiliated Companies’’ of the Company, as defined in the Investment Company Act, which are not ‘‘Controlled Investments.’’ A company is deemed to be an ‘‘Affiliate’’ of the Company if the Company owns 5% or more, but less than 25%, of the voting securities of such company.

(5)

Investments classified as Level 3 whereby fair value was determined by the Company's board of directors.

(6)

Security pays, or has the option to pay, all of its interest in kind.

(7)

Non-income producing security.

(8)

Investment was on non-accrual status as of period end.

(9)

The interest rate on these loans includes a default interest rate.

(10)

Indicates assets that the Company believes do not represent ‘‘qualifying assets’’ under Section 55(a) of the Investment Company Act. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets. Of the Company’s total assets, 21.7% were non-qualifying assets as of period end.

(11)

Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. Such security may be sold in certain transactions (normally to qualified institutional buyers) and remain exempt from registration.

(12)

Under the terms of the credit agreement, this investment has an exit fee which requires the borrower to pay, in connection with each prepayment or other repayment a fee equal to 2.50% of the amount being repaid.

(13)

As of period end, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,363; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $(112,307); the net unrealized depreciation was $(109,944); the aggregate cost of securities for Federal income tax purposes was $350,434.

As of March 31, 2020, the Company’s investments consisted of the following:

Investment Type	Investments at Fair Value		Percentage of Net Assets
Debt	$	146,708		288.55	%
Equity/Other		18,804		36.98	%
Short-Term Investments		74,978		147.46	%
Total	$	240,490		472.99	%

F-8

As of March 31, 2020, the industry composition of the Company’s portfolio at fair value was as follows:

Industry	Investments at Fair Value		Percentage of Net Assets
Wireless Telecommunications Services	$	35,986		70.78	%
Internet Media		18,978		37.33	%
Software Services		15,824		31.11	%
Food & Staples		13,133		25.83	%
Retail		9,904		19.48	%
Chemicals		9,560		18.80	%
Telecommunications Services		8,524		16.76	%
Apparel & Textile Products		7,962		15.66	%
Construction Materials Manufacturing		7,849		15.44	%
Specialty Finance		7,645		15.04	%
Restaurants		6,057		11.91	%
Radio Broadcasting		5,943		11.69	%
Technology		3,736		7.35	%
Hotel Operator		3,516		6.92	%
Consulting		3,235		6.36	%
Industrial		2,380		4.68	%
Communications Equipment		2,028		3.99	%
Real Estate Services		1,865		3.67	%
Consumer Finance		813		1.60	%
Building Cleaning and Maintenance Services		545		1.07	%
Maritime Security Services		29		0.06	%
Short-Term Investments		74,978		147.46	%
Total	$	240,490		472.99	%

As of March 31, 2020, the geographic composition of the Company’s portfolio at fair value was as follows:

Geography	Investments at Fair Value		Percentage of Net Assets
United States	$	204,475		402.16	%
United Kingdom		36,015		70.83	%
Total	$	240,490		472.99	%

F-9

GREAT ELM CAPITAL CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2019

Dollar amounts in thousands

Portfolio Company

Industry

Security⁽¹⁾

Notes

Interest Rate⁽²⁾

Initial Acquisition Date

Maturity

Par Amount / Quantity

Cost

Fair Value

Investments at Fair Value

APTIM Corp.

Industrial

1st Lien, Secured Bond

7.75%

03/28/2019

06/15/2025

7,000

5,629

4,200

ASP Chromaflo Technologies Corp.

Chemicals

2nd Lien Secured Loan

1M L + 8.00%, 9.00% Floor (9.80%)

08/12/2019

11/18/2024

6,992

6,763

6,917

Avanti Communications Group, plc

Wireless Telecommunications Services

1.5 Lien, Secured Bond

4, 5, 6, 10, 11, 12

12.50%

05/24/2019

05/24/2021

8,413

Avanti Communications Group, plc

Wireless Telecommunications Services

1.5 Lien, Secured Bond - Unfunded

4, 5, 6, 10, 11, 12

12.50%

05/24/2019

05/24/2021

Avanti Communications Group, plc

Wireless Telecommunications Services

2nd Lien, Secured Bond

4, 5, 6, 10, 11

9.00%

11/03/2016

10/01/2022

42,467

39,391

29,812

Avanti Communications Group, plc

Wireless Telecommunications Services

Common Equity

4, 5, 7, 10

n/a

11/03/2016

n/a

196,086,410

50,660

2,353

Best Western Luling

Hotel Operator

1st Lien, Secured Loan

5, 8, 9

1ML + 12.00%, 12.25% Floor (0.00%)

11/03/2016

12/18/2017

2,715

1,300

3,361

Boardriders, Inc.

Apparel & Textile Products

1st Lien, Secured Loan

3M L + 6.50%, 7.50% Floor (8.30%)

03/28/2019

04/06/2024

8,962

8,819

8,744

California Pizza Kitchen, Inc.

Restaurants

1st Lien, Secured Loan

3M L + 6.00%, 7.00% Floor (7.91%)

03/26/2019

08/23/2022

9,923

9,671

8,524

California Pizza Kitchen, Inc.

Restaurants

2nd Lien Secured Loan

3M L + 10.00%, 11.00% Floor (11.91%)

07/17/2019

08/23/2023

4,300

4,080

3,448

Commercial Barge Line Company

Water Transport

1st Lien, Secured Loan

3M L + 8.75%, 9.75% Floor (10.68%)

05/17/2017

11/12/2020

15,883

14,315

8,001

Cooke Omega Investments, Inc.

Food & Staples

Bond

8.50%

09/19/2019

12/15/2022

3,000

2,927

3,022

Davidzon Radio, Inc.

Radio Broadcasting

1st Lien, Secured Loan

5, 9

1ML + 10.00%, 11.00% Floor (14.70%)

11/03/2016

03/31/2020

8,962

8,903

7,795

Duff & Phelps

Consulting

1st Lien Revolver

3M L + 3.25%, 3.25% Floor (5.16%)

09/09/2019

02/13/2022

(438

)

Duff & Phelps

Consulting

1st Lien Revolver - Unfunded

1M L + 3.25%, 3.25% Floor (5.29%)

09/09/2019

02/13/2022

5,000

(458

)

The Finance Company

Consumer Finance

1st Lien, Secured Revolver

3, 5

1M L + 11.00%, 11.50% Floor (12.70%)

11/03/2016

07/02/2020

806

The Finance Company

Consumer Finance

1st Lien, Secured Revolver - Unfunded

3, 5

1M L + 11.00%, 11.50% Floor (13.09%)

11/03/2016

07/02/2020

194

The Finance Company

Consumer Finance

1st Lien Secured Loan B

3, 5

Consumer Finance + 0.00%, 3, 5 (0.00%)

06/08/2018

07/02/2020

1,491

244

The Finance Company

Consumer Finance

Common Equity

3, 5, 7

n/a

06/08/2018

n/a

288

Finastra Group Holdings, Ltd.

Software Services

2nd Lien, Secured Loan

3M L + 7.25%, 8.25% Floor (9.45%)

12/14/2017

06/13/2025

14,000

13,353

13,655

Full House Resorts, Inc.

Gaming, Lodging & Restaurants

1st Lien, Secured Note

5, 11

3M L + 7.00%, 8.00% Floor (8.94%)

02/02/2018

02/02/2024

9,800

9,656

9,657

Mitchell International, Inc.

Software Services

2nd Lien Secured Loan

1M L + 7.25%, 8.00% Floor (9.05%)

08/02/2019

11/30/2025

12,000

11,302

11,801

OPS Acquisitions Limited and Ocean Protection Services Limited

Maritime Security Services

1st Lien, Secured Loan

4, 5, 8, 10

1M L + 12.00%, 12.50% Floor (0.00%)

11/03/2016

06/01/2018

4,903

4,240

OPS Acquisitions Limited and Ocean Protection Services Limited

Maritime Security Services

Common Equity

4, 5, 7, 10

n/a

11/03/2016

n/a

PE Facility Solutions, LLC

Building Cleaning and Maintenance Services

1st Lien, Secured Loan B

3, 5, 6, 8

1M L + 14.00%, (0.00%)

02/28/2017

02/27/2022

838

819

F-10

PE Facility Solutions, LLC	Building Cleaning and Maintenance Services	Common Equity	3, 5, 7	n/a	02/28/2017	n/a	-		-			-
PEAKS Trust 2009-1	Consumer Finance	1st Lien, Secured Note	5, 8, 10	1M L + 5.50%, 7.50% Floor (0.00%)	11/03/2016	01/27/2020	940		849			-
Peninsula Pacific Entertainment, LLC	Gaming, Lodging & Restaurants	1st Lien, Secured Loan	5	3M L + 7.25%, 7.25% Floor (9.19%)	06/27/2019	11/13/2024	2,500		2,505			2,470
PFS Holdings Corp.	Food & Staples	1st Lien, Secured Loan	5	3M L + 3.50%, 4.50% Floor (5.41%)	07/09/2018	01/31/2021	14,821		11,735			9,054
Prestige Capital Finance, LLC (fka Prestige Capital Corporation)	Specialty Finance	Common Equity	3, 5, 10	n/a	02/08/2019	n/a	-		7,466			7,726
Research Now Group, Inc.	Internet Media	1st Lien, Secured Revolver	5	3M L + 4.50%, 4.50% Floor (6.41%)	01/29/2019	12/20/2022	4,316		3,696			4,316
Research Now Group, Inc.	Internet Media	1st Lien, Secured Revolver - Unfunded	5	3M L + 4.50%, 4.50% Floor (6.75%)	01/29/2019	12/20/2022	5,684		-			(334	)
Research Now Group, Inc.	Internet Media	2nd Lien, Secured Loan	5	3M L + 9.50%, 10.50% Floor (11.41%)	05/20/2019	12/20/2025	12,000		11,951			11,941
Shearer's Foods, LLC	Food & Staples	2nd Lien, Secured Loan		1M L + 6.75%, 7.75% Floor (8.55%)	06/17/2019	06/30/2022	9,000		8,955			8,899
Subcom, LLC	Telecommunications Services	1st Lien, Secured Revolver	5	3M L + 5.00%, 5.00% Floor (6.91%)	11/21/2019	11/02/2023	-		(1,525	)		-
Subcom, LLC	Telecommunications Services	1st Lien, Secured Revolver - Unfunded	5	3M L + 5.00%, 5.00% Floor (6.91%)	11/21/2019	11/02/2023	10,000		-			(928	)
Tallage Davis, LLC	Real Estate Services	1st Lien, Secured Loan	5	11.00%	03/20/2018	01/26/2023	2,065		2,065			2,065
Tallage Davis, LLC	Real Estate Services	1st Lien, Secured Loan - Unfunded	5	11.00%	03/20/2018	01/26/2023	8,910		-			-
Tensar Corp.	Construction Materials Manufacturing	1st Lien, Secured Loan		3M L + 4.75%, 5.75% Floor (6.69%)	06/27/2019	07/10/2021	8,223		7,903			7,792
TRU (UK) Asia Limited	Retail	Common Equity	5, 7, 10	n/a	07/21/2017	n/a	776,954		22,132			11,996
TRU (UK) Asia Limited Liquidating Trust	Retail	Common Equity	5, 7	n/a	07/21/2017	n/a	16,000		1,723			1,474
Total Investments excluding Short-Term Investments (227.43% of Net Assets)									281,574			197,615
Short-Term Investments
State Street Institutional Treasury Money Market Fund		Premier Class		n/a		n/a	11,022,134		11,022			11,022
United States Treasury		Treasury Bill		0%		04/02/2020	75,000		74,711			74,711
Total Short-Term Investments (98.67% of Net Assets)									85,733			85,733
TOTAL INVESTMENTS(13) (326.1% of Net Assets)								$	367,307		$	283,348
Other Liabilities in Excess of Assets (226.1% of Net Assets)											$	(196,459	)
NET ASSETS											$	86,889

(1)

(2)

A majority of the Company’s variable rate debt investments bear interest at a rate that is determined by reference to London Interbank Offered Rate (‘‘LIBOR” or “L”) and which is reset daily, monthly, quarterly or semiannually. For each debt investment, the Company has provided the interest rate in effect as of period end. If no reference to LIBOR is made, the rate is fixed. A floor is the minimum rate that will be applied in calculating an interest rate. A cap is the maximum rate that will be applied in calculating an interest rate. The one month (“1M”) LIBOR as of period end was 1.76%. The three month (“3M”) LIBOR as of period end was 1.91%.

(3)

(4)

(5)

Investments classified as Level 3 whereby fair value was determined by the Company's board of directors.

(6)

Security pays, or has the option to pay, all of its interest in kind.

F-11

(7)

Non-income producing security.

(8)

Investment was on non-accrual status as of period end.

(9)

The interest rate on these loans includes a default interest rate.

(10)

(11)

(12)

As of period end, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $3,357; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $70,638; the net unrealized depreciation was $(67,281); the aggregate cost of securities for Federal income tax purposes was $350,629.

As of December 31, 2019 the Company’s investments consisted of the following:

Investment Type	Investments at Fair Value		Percentage of Net Assets
Debt	$	174,066		200.33	%
Equity/Other		23,549		27.10	%
Short-Term Investments		85,733		98.67	%
Total	$	283,348		326.10	%

F-12

As of December 31, 2019 the industry composition of the Company’s portfolio at fair value was as follows:

Industry	Investments at Fair Value			Percentage of Net Assets
Wireless Telecommunications Services	$	40,578			46.70	%
Software Services		25,456			29.30	%
Food & Staples		20,975			24.14	%
Internet Media		15,923			18.33	%
Retail		13,470			15.50	%
Gaming, Lodging & Restaurants		12,127			13.96	%
Restaurants		11,972			13.78	%
Apparel & Textile Products		8,744			10.06	%
Water Transport		8,001			9.21	%
Radio Broadcasting		7,795			8.97	%
Construction Materials Manufacturing		7,792			8.97	%
Specialty Finance		7,726			8.89	%
Chemicals		6,917			7.96	%
Industrial		4,200			4.83	%
Hotel Operator		3,361			3.87	%
Real Estate Services		2,065			2.38	%
Consumer Finance		1,050			1.21	%
Building Cleaning and Maintenance Services		819			0.94	%
Maritime Security Services		30			0.03	%
Consulting		(458	)		(0.53	)%
Telecommunications Services		(928	)		(1.07	)%
Short-Term Investments		85,733			98.67	%
Total	$	283,348			326.10	%

As of December 31, 2019 the geographic composition of the Company’s portfolio at fair value was as follows:

Geography	Investments at Fair Value		Percentage of Net Assets
United States	$	242,740		279.37	%
United Kingdom		40,608		46.74	%
Total	$	283,348		326.10	%

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

F-13

GREAT ELM CAPITAL CORP.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands, except share and per share amounts

1. ORGANIZATION

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.

2. SIGNIFICANT ACCOUNTING POLICIES

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. These financial statements reflect all adjustments (consisting of normal recurring items or items discussed herein) that management believes are necessary to fairly state results for the interim periods presented. Results of operations for interim periods are not necessarily indicative of annual results of operations. The Company is an investment company following accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies.

Basis of Consolidation. Under the Investment Company Act, Article 6 of Regulation S-X and GAAP, 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 subsidiary, TFC-SC Holdings, 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. 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 paid-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.

F-14

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.

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 specific identification 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.

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 ASC 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”).

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 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. 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 our Board, 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.

F-15

▪

The investment professionals of GECM provide recent portfolio company financial statements and other reporting materials to an independent valuation firm (or firms) approved by our Board;

▪

The fair value of investments comprising in the aggregate less than 5% of the Company’s total capitalization and individually less than 1% of the Company’s total capitalization may be determined by GECM in good faith in accordance with the Company’s valuation policy without the employment of an independent valuation firm.

▪

The Company’s audit committee recommends, and our Board 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 our Board and the audit committee of our Board.

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.

Investments in revolvers or delayed draw loans may include unfunded commitments for which our acquisition cost will be offset by compensation received on the portion of the commitment that is unfunded. As a result, the purchases of a commitment that is not fully funded may result in a negative cost basis for the funded commitment. The fair value of the unfunded commitment is adjusted for price appreciation or depreciation and may result in a negative fair value for the unfunded commitment.

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. 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 in order to be eligible for tax treatment under subchapter M of the Code. 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.

F-16

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 has not accrued any excise tax expense for the three months ended March 31, 2020. The Company accrued $209 of excise tax expense for the year ended December 31, 2019.

At December 31, 2019, the Company, for federal income tax purposes, had capital loss carryforwards of $45,137 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, 2019, $45,137 are limited losses and available for use subject to annual limitation under Section 382. Of the capital losses at December 31, 2019, $16,815 are short-term and $28,322 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.

Recent Accounting Developments

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. On January 1, 2020, the Company adopted the additional disclosures of ASU 2018-13 and there was no impact to the financial statement disclosures.

Reference Rate Reform In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. If LIBOR ceases to exist, we may need to renegotiate outstanding loans to our portfolio companies which extend beyond 2021, and that utilize LIBOR as a factor in determining the interest rate, to replace LIBOR with the new standard that is established. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on our cost of capital and net investment income cannot yet be determined.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), to facilitate the effects of reference rate reform on financial reporting. The provisions provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform on financial reporting due to the cessation of the London Interbank Offered Rate (LIBOR) if certain criteria are met. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. The Company adopted the amendments as of March 12, 2020 on a prospective basis and there was no impact to the accompanying financial statements and related disclosures.

F-17

3. SIGNIFICANT AGREEMENTS AND RELATED PARTIES

Investment Management Agreement. The Company has 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.

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 GECM.

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 is 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 months ended March 31, 2020 management fees amounted to $698. For the three months ended March 31, 2019 management fees amounted to $706. As of March 31, 2020 and December 31, 2019, $699 and $746 remained payable, respectively.

Incentive Fee The incentive fee consists of two components that are independent of each other with the result that one component may be payable even if the other is not. One component of the incentive fee is based on income (the “Income Incentive Fee”) and the other component is based on capital gains (the “Capital Gains Incentive Fee”).

The Income Incentive Fee is calculated on a quarterly basis as 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 (“PIK”) interest, PIK 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 March 31, 2020 was $21,821. Accrued Unpaid Income includes capitalized PIK income of $12,267 on investments still held at March 31, 2020. Accrued Unpaid Income as of December 31, 2019 was $23,495, which included capitalized PIK income of $12,279 on investments still held at December 31, 2019.

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, (1) reduce Pre-Incentive Fee Net Investment Income and (2) reduce the amount of Accrued Unpaid Income Incentive Fees previously deferred.

F-18

We will defer cash payment of any Income Incentive Fee otherwise payable to the investment adviser in any quarter (excluding Accrued Unpaid Income Incentive Fees with respect to such quarter) that exceeds (1) 20% of the Cumulative Pre‑Incentive Fee Net Return (as defined below) during the most recent twelve full calendar quarter period ending on or prior to the date such payment is to be made (the “Trailing Twelve Quarters”) less (2) the aggregate incentive fees that were previously paid to the investment adviser during such Trailing Twelve Quarters (excluding Accrued Unpaid Income Incentive Fees during such Trailing Twelve Quarters and not subsequently paid). “Cumulative Pre‑Incentive Fee Net Return” during the relevant Trailing Twelve Quarters means the sum of (a) pre‑incentive fee net investment income in respect of such Trailing Twelve Quarters less (b) net realized capital losses and net unrealized capital depreciation, if any, in each case calculated in accordance with GAAP, in respect of such Trailing Twelve Quarters.

Under the Capital Gains 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.

For the three months ended March 31, 2020 and 2019, the Company incurred Income Incentive Fees of $100 and $696, respectively. As of March 31, 2020 and December 31, 2019, $8,257 and $8,157 of Income Incentive Fees, respectively, remained payable and none 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 three months ended March 31, 2020 and the year ended December 31, 2019, the Company did not have any Capital Gains Incentive Fees accrual.

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.

Administration Fees. The Company has an administration agreement (the “Administration Agreement”) with GECM to provide administrative services, including, among other things, furnishing the Company with office facilities, equipment, clerical, bookkeeping and record keeping 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.

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 three months ended March 31, 2020 and 2019, the Company incurred expenses under the Administration Agreement of $204 and $211, respectively. As of March 31, 2020 and December 31, 2019, $155 and $176 remained payable, respectively.

F-19

4. FAIR VALUE MEASUREMENT

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:

Basis of Fair Value Measurement

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

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.

Level 2 Instruments Valuation Techniques and Significant Inputs

Equity, Bank Loans, Corporate Debt, and Other Debt Obligations

The types of instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency may include commercial paper, most government agency obligations, certain corporate debt securities, certain mortgage-backed securities, certain bank loans, less liquid publicly-listed equities, certain state and municipal obligations, certain money market instruments and certain loan commitments.

Valuations of Level 2 debt and equity instruments can be verified to quoted prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g. indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.

F-20

Level 3 Instruments Valuation Techniques and Significant Inputs

Bank Loans, Corporate Debt, and Other Debt Obligations

Valuations are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows, market yields and recovery assumptions. The significant inputs are generally determined based on an analysis of market comparables, transactions in similar instruments and/or recovery and liquidation analyses.

Equity

Recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate and available:

▪ Transactions in similar instruments;

▪ Discounted cash flow techniques;

▪ Third party appraisals; and

▪ Industry multiples and public comparables.

Evidence includes recent or pending reorganizations (for example, merger proposals, tender offers and debt restructurings) and significant changes in financial metrics, including:

▪ Current financial performance as compared to projected performance;

▪ Capitalization rates and multiples; and

▪ Market yields implied by transactions of similar or related assets.

As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of March 31, 2020 and December 31, 2019 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 March 31, 2020:

Assets	Level 1		Level 2		Level 3		Total
Debt	$	-	$	27,209	$	119,499	$	146,708
Equity/Other		-		-		18,804		18,804
Short Term Investments		74,978		-		-		74,978
Total investment assets	$	74,978	$	27,209	$	138,303	$	240,490

The following is a summary of the Company’s investment assets categorized within the fair value hierarchy as of December 31, 2019:

Assets	Level 1		Level 2		Level 3		Total
Debt	$	-	$	53,635	$	120,431	$	174,066
Equity/Other		-		-		23,549		23,549
Short Term Investments		85,733		-		-		85,733
Total investment assets	$	85,733	$	53,635	$	143,980	$	283,348

F-21

The following is a reconciliation of Level 3 assets for the three months ended March 31, 2020:

Level 3	Beginning Balance as of January 1, 2020		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 March 31, 2020
Debt	$	120,431	$	10,048	$	25,496	$	(1,608	)	$	(18,375	)	$	(17,747	)	$	1,254	$	119,499
Equity/Other		23,549		-		-		-			(4,745	)		-			-		18,804
Total investment assets	$	143,980	$	10,048	$	25,496	$	(1,608	)	$	(23,120	)	$	(17,747	)	$	1,254	$	138,303

The following is a reconciliation of Level 3 assets for the year ended December 31, 2019:

Level 3	Beginning Balance as of January 1, 2019		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 December 31, 2019
Debt	$	116,034	$	-	$	120,050	$	(313	)	$	(6,210	)	$	(112,879	)	$	3,749	$	120,431
Equity/Other		-		6,231		32,935		-			(14,003	)		(1,614	)		-		23,549
Total investment assets	$	116,034	$	6,231	$	152,985	$	(313	)	$	(20,213	)	$	(114,493	)	$	3,749	$	143,980

⁽¹⁾

Purchases may include new deals, additional fundings (inclusive of those on revolving credit facilities), refinancings, capitalized PIK income, and securities received in corporate actions and restructurings. Sales and Settlements may include scheduled principal payments, prepayments, sales and repayments (inclusive of those on revolving credit facilities), and securities delivered in corporate actions and restructuring of investments.

⁽²⁾

The net change in unrealized depreciation relating to Level 3 assets still held at March 31, 2020 totaled $(23,154) consisting of the following: $(18,409) related to debt investments and $(4,745) related to equity. The net change in unrealized depreciation relating to Level 3 assets still held at December 31, 2019 totaled $(20,664) consisting of the following: $(6,661) related to debt investments and $(14,003) relating to equity/other.

One investment with a fair value of $6,917 was transferred from Level 3 to Level 2 as a result of increased pricing transparency during the three months ended March 31, 2020. Three investments with an aggregate fair value of $16,965 were transferred from Level 2 to Level 3 as a result of decreased pricing transparency during the three months ended March 31, 2020.

One investment with a fair value of $2,353 was transferred from Level 1 to Level 3 during the year ended December 31, 2019 as a result of the shares being delisted from their primary exchange.

The following tables present the ranges of significant unobservable inputs used to value the Company’s Level 3 assets as of March 31, 2020 and December 31, 2019, 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 Debt 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.

F-22

As of March 31, 2020
Investment Type	Fair value		Valuation Technique⁽¹⁾	Unobservable Input⁽¹⁾	Range (Weighted Average)⁽²⁾
Debt	$	34,731	Market Approach	Earnings Multiple	4.00
			Income Approach	Discount Rate	17.50%
		20,226	Market Approach	EBITDA Multiple	4.25 - 5.50 (5.02)
		48,406	Income Approach	Discount Rate	2.84 - 32.50% (12.10%)
		12,059	Income Approach	Implied Yield	5.18% - 18.44% (11.51%)
		4,077	Asset Recovery / Liquidation⁽⁴⁾
Total Debt	$	119,499

Equity/Other	$	8,900	Market Approach	Earnings Multiple	2.88 - 4.00 (3.08)
			Income Approach	Dividend Discount Rate	17.50% - 40.50% (37.26%)
		8,430	Market Approach	Earnings Multiple	6.00
			Market Approach	Comparable Price⁽³⁾	6.75
		1,474	Asset Recovery / Liquidation⁽⁴⁾
Total Equity/Other	$	18,804

As of December 31, 2019
Investment Type	Fair value			Valuation Technique⁽¹⁾	Unobservable Input⁽¹⁾	Range (Weighted Average)⁽²⁾
Debt	$	9,054		Market Approach	EBITDA Multiple	5.50
		(1,262	)		Implied Yield	4.09% - 8.09% (7.03%)
		38,225		Market Approach	Earnings Multiple	4.25
				Income Approach	Discount Rate	12.75%
		73,334		Income Approach	Discount Rate	3.45% - 32.50% (12.70%)
		1,080		Asset Recovery / Liquidation⁽⁴⁾
Total Debt	$	120,431

Equity/Other	$	10,079		Market Approach	Earnings Multiple	2.80 - 4.25 (3.41)
				Income Approach	Discount Rate	12.75% - 39.00% (32.87%)
		11,996		Market Approach	Comparable Price⁽³⁾	6.00 - 11.00 (8.75)
		1,474		Asset Recovery / Liquidation⁽⁴⁾
Total Equity/Other	$	23,549

(1)	The fair value of any one instrument may be determined using multiple valuation techniques or unobservable inputs.

(2)

Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investment. The range and weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment.

(3)	Comparable price may include broker quotes for the exact security or similar securities.

(4)	Investments valued using the asset recovery or liquidation technique include investments for which valuation is based on current financial data without a discount rate applied.

F-23

5. DEBT

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.

On June18, 2019, we offered $42,500 in aggregate principal amount of 6.50% notes due 2024 (the "GECCN Notes"), which included $2,500 of the GECCN Notes sold in connection with the partial exercise of the underwriters’ over-allotment option. On July 5, 2019, we sold an additional $2.5 million of the GECCN Notes upon another partial exercise of the underwriters’ over-allotment option. As a result of the issuance of these additional GECCN Notes, the aggregate principal balance of the GECCN Notes outstanding is $45,000.

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 Company may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder. During the three months ended March 31, 2020, the Company repurchased $227 in principal amount of the GECCL Notes, $46 in principal amount of the GECCM Notes and $2 in principal amount of the GECCN Notes.

F-24

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

As of	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	$	6,168	N/A	$	1.02

December 31, 2017
GECCL Notes	$	32,631	$	5,010	N/A	$	1.02

December 31, 2018
GECCL Notes	$	32,631	$	2,393	N/A	$	1.01
GECCM Notes		46,398		2,393	N/A		0.98

December 31, 2019
GECCL Notes	$	32,631	$	1,701	N/A	$	1.01
GECCM Notes		46,398		1,701	N/A		1.01
GECCN Notes		45,000		1,701	N/A		1.00

March 31, 2020
GECCL Notes	$	32,404	$	1,411	N/A	$	0.93
GECCM Notes		46,352		1,411	N/A		0.93
GECCN Notes		44,998		1,411	N/A		0.93

⁽¹⁾	Total amount of each class of senior securities outstanding at the end of the period presented.

⁽²⁾

Asset coverage per unit is the ratio of the carrying value of Great Elm’s total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness.

⁽³⁾	The amount to which such class of senior security would be entitled upon the voluntary liquidation of the issuer in preference to any security junior to it.

⁽⁴⁾	The average market value per unit for the Notes, as applicable, is based on the average daily prices of such notes and is expressed per $1.00 of indebtedness.

The indenture’s covenants, include restrictions on certain activities in the event the Company falls below the minimum 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 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 (the “Minimum ACR”).

As of March 31, 2020, the Company’s asset coverage ratio was approximately 141.1%. As a result of falling below the Minimum ACR, the Company will be subject to certain limitations on its ability to incur additional debt, make cash distributions on junior securities or repurchase junior securities, in each case, in accordance with the Investment Company Act and the indentures governing our outstanding notes, until such time the Company is above the Minimum ACR.

As of March 31, 2020 and December 31, 2019 the Company was in compliance with all covenants under the indentures.

F-25

For the three months ended March 31, 2020 and 2019, the components of interest expense were as follows:

	For the Three Months Ended March 31,
	2020			2019
Borrowing interest expense	$	2,042		$	1,313
Amortization of acquisition premium		263			141
Total	$	2,305		$	1,454
Weighted average interest rate⁽¹⁾		7.44	%		7.36	%
Average outstanding balance	$	124,005		$	79,029

⁽¹⁾	Annualized.

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.

	March 31, 2020
Facility	Commitments		Borrowings Outstanding		Fair Value
Unsecured Debt - GECCL Notes	$	32,404	$	32,404	$	23,007
Unsecured Debt - GECCM Notes		46,352		46,352		33,373
Unsecured Debt - GECCN Notes		44,998		44,998		32,398
Total	$	123,754	$	123,754	$	88,778

	December 31, 2019
Facility	Commitments		Borrowings Outstanding		Fair Value
Unsecured Debt - GECCL Notes	$	32,631	$	32,631	$	32,918
Unsecured Debt - GECCM Notes		46,398		46,398		46,888
Unsecured Debt - GECCN Notes		45,000		45,000		45,180
Total	$	124,029	$	124,029	$	124,986

6. COMMITMENTS AND CONTINGENCIES

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 March 31, 2020, the Company had approximately $21,877 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 March 31, 2020 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. The Company has considered the net decreases in net assets and negative cash flows from operations and has concluded that it has the ability to meet its obligations in the ordinary course of business based upon an evaluation of its cash position and sources of liquidity.

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.

F-26

We are named as a defendant in a lawsuit filed on March 5, 2016, and captioned Intrepid Investments, LLC v. London Bay Capital, which is pending in the Delaware Court of Chancery. The plaintiff immediately agreed to stay the action in light of an ongoing mediation among parties other than us. This lawsuit was brought by a member of Speedwell Holdings (formerly known as The Selling Source, LLC), one of our portfolio investments, against various members of and lenders to Speedwell Holdings. The plaintiff asserts claims of aiding and abetting, breaches of fiduciary duty, and tortious interference against us. In June 2018, Intrepid Investments, LLC (“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. In February 2019, Intrepid filed a second amended complaint to which defendants filed a renewed motion to dismiss in March 2019. We intend to continue to monitor the matter and will assess the need to defend the matter further as necessary.

In July 2016, Full Circle filed suit in the District Court of Caldwell County, Texas against, among others, Willis Pumphrey for breach of a guaranty agreement arising from a loan transaction with Full Circle. Dr. Pumphrey, a personal guarantor of the loan made by Full Circle, our predecessor in interest, brought counterclaims in (i) the District Court of Caldwell County, Texas and (ii) the District Court of Harris County, Texas (the “District Court”) against, among others, Justin Bonner, an employee of GECM, in each case, alleging breach of a confidentiality agreement and tortious interference with Dr. Pumphrey’s attempted sale of a business in which he owned an interest. In August 2017, Dr. Pumphrey voluntarily withdrew his complaint against Mr. Bonner and Full Circle in the District Court of Harris County, Texas. In November 2017, Dr. Pumphrey voluntarily withdrew his complaint without prejudice against Full Circle in the District Court of Caldwell County, Texas. On November 29, 2017, Dr. Pumphrey refiled his claims in the District Court of Harris County, Texas naming Full Circle, MAST Capital, GECC and GECM as defendants. Dr. Pumphrey is seeking between $2 million and $6 million in damages. GECC believes Dr. Pumphrey’s claims to be frivolous and intends to vigorously defend them. Furthermore, we continue to pursue our initial claims against Dr. Pumphrey in the District Court of Caldwell County, Texas. In September 2019, we received a judgment in our favor from the District Court of Caldwell County, Texas.

In September 2018, we (as successor by merger to Full Circle), the other lenders, and the lender trustee under PEAKS Trust 2009-11 (“PEAKS Trust”), were named as defendants in a claim brought by the Chapter 7 trustee in the ITT Educational Services bankruptcy. Full Circle purchased via assignment a portion of the PEAKS Trust senior secured facility from Deutsche Bank Trust Company Americas in December 2016. The PEAKS Trust senior secured facility was supported by an underlying portfolio of student loans and guaranteed by ITT Educational Services, Inc. (“ITT”). 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 GECC. 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.

7. INDEMNIFICATION

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.

F-27

8. FINANCIAL HIGHLIGHTS

Below is the schedule of financial highlights of the Company:

	For the Three Months Ended March 31,
	2020			2019
Per Share Data:⁽¹⁾
Net asset value, beginning of period	$	8.63		$	10.34
Net investment income		0.26			0.26
Net realized gains		(1.12	)		0.06
Net change in unrealized appreciation (depreciation)		(2.47	)		0.44
Net increase (decrease) in net assets resulting from operations		(3.33	)		0.76
Accretion from share buybacks		-			0.04
Distributions declared from net investment income⁽²⁾		(0.25	)		(0.25	)
Net decrease resulting from distributions to common stockholders		(0.25	)		(0.25	)
Net asset value, end of period	$	5.05		$	10.89
Per share market value, end of period	$	2.80		$	8.26

Shares outstanding, end of period		10,062,682			10,460,401
Total return based on net asset value⁽³⁾		(39.18	)%		7.78	%
Total return based on market value⁽³⁾		(62.05	)%		8.44	%

Ratio/Supplemental Data:
Net assets, end of period	$	50,845		$	113,954
Ratio of total expenses to average net assets ^(4),(5)		20.97	%		12.69	%
Ratio of incentive fees to average net assets⁽⁴⁾		0.14	%		2.50	%
Ratio of net investment income to average net assets^(4),(5)		14.72	%		10.01	%
Portfolio turnover		16	%		28	%

⁽¹⁾	The per share data was derived by using the weighted average shares outstanding during the period, except where such calculations deviate from those specified under the instructions to Form N-2.

⁽²⁾	The per share data for distributions declared reflects the actual amount of distributions of record per share for the period.

⁽³⁾

Total return based on net asset value is calculated as the change in net asset value per share, assuming the Company’s distributions were reinvested through its dividend reinvestment plan. Total return based on market value is calculated as the change in market value per share, assuming the Company’s distributions were reinvested through its dividend reinvestment plan. Total return does not include any estimate of a sales load or commission paid to acquire shares.

⁽⁴⁾	Average net assets used in ratio calculations is calculated using monthly ending net assets for the period presented. For the three months ended March 31, 2020 and 2019 average net assets were $72,446 and $112,767, respectively.

⁽⁵⁾	Annualized for periods less than one year.

9. AFFILIATED AND CONTROLLED INVESTMENTS

Affiliated investments are 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 March 31, 2020 represented 71% of the Company's net assets.

Controlled investments are 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 March 31, 2020 represented 18% of the Company's net assets.

F-28

Fair value as of March 31, 2020 along with transactions during the three months ended March 31, 2020 in these affiliated investments and controlled investments was as follows:

	For the Three Months Ended March 31, 2020
Issue⁽¹⁾	Fair value at December 31, 2019		Gross Additions⁽²⁾		Gross Reductions⁽³⁾		Net Realized Gain (Loss)		Change in Unrealized Appreciation (Depreciation)			Fair value at March 31, 2020		Interest Income⁽⁴⁾		Fee Income		Dividend Income
Non-Controlled, Affiliated Investments
Avanti Communications Group PLC
1.5 Lien, Secured Bond	$	8,413	$	265	$	-	$	-	$	-		$	8,678	$	268	$	-	$	-
1.5 Lien, Secured Bond - Unfunded		-		-		-		-		-			-		-		-		-
2nd Lien, Secured Bond		29,812		227		-		-		(3,986	)		26,053		1,183		-		-
Equity (9% of class)		2,353		-		-		-		(1,098	)		1,255		-		-		-
		40,578		492		-		-		(5,084	)		35,986		1,451		-		-

OPS Acquisitions Limited and Ocean Protection Services Limited
1st Lien, Secured Loan		30		-		-		-		(1	)		29		-		-		-
Equity (19% of class)		-		-		-		-		-			-		-		-		-
		30		-		-		-		(1	)		29		-		-		-

Totals	$	40,608	$	492	$	-	$	-	$	(5,085	)	$	36,015	$	1,451	$	-	$	-

Controlled Investments
The Finance Company
1st Lien, Secured Revolver	$	806	$	555	$	792	$	-	$	-		$	569	$	22	$	9	$	-
1st Lien, Secured Revolver - Unfunded		-		-		-		-		-			-		-		-		-
1st Lien, Secured Term Loan B		244		-		-		-		-			244		48		-		-
Equity (72% of class)		-		-		-		-		-			-		-		-		-
		1,050		555		792		-		-			813		70		9		-

PE Facility Solutions, LLC
1st Lien, Secured Term Loan B		819		-		278		-		4			545		-		-		-
Equity (87% of class)		-		-		-		-		-			-		-		-		-
		819		-		278		-		4			545		-		-		-

Prestige Capital Corporation
Equity (80% of class)		7,726		-		-		-		(81	)		7,645		-		-		400

Totals	$	9,595	$	555	$	1,070	$	-	$	(77	)	$	9,003	$	70	$	9	$	400

⁽¹⁾	Non-unitized equity investments are disclosed with percentage ownership in lieu of quantity.

⁽²⁾	Gross additions include increases resulting from new or additional portfolio investments, capitalized PIK income, accretion of discounts and the exchange of one or more existing securities for one or more new securities.

⁽³⁾	Gross reductions include decreases resulting from principal collections related to investment repayments or sales and the exchange of one or more existing securities for one or more new securities.

⁽⁴⁾	Income amounts include accrued PIK income.

F-29

In accordance with SEC Regulation S-X (“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” under the conditions specified in S-X Rule 1-02(w). The Company determined that two portfolio companies, PE Facility Solutions, LLC (“PEFS”) and Prestige Capital Finance, LLC (“PCF”), are significant subsidiaries for the three months ended March 31, 2020 under at least one of the significance conditions of S-X Rule 1-02(w). Accordingly, unaudited financial information as of and for the three months ended March 31, 2020 has been included for both PEFS and PCF as follows (in thousands):

PE Facility Solutions, LLC

Balance Sheet	As of March 31, 2020
Current assets	$	674
Noncurrent assets		-
Total Assets		674

Current liabilities		818
Noncurrent liabilities		-
Total Liabilities		818

Net Equity	$	(144	)

Statement of Operations	For the three months ended March 31, 2020
Gross Revenues	$	-
Cost of Sales		-
SG&A Expenses		(274	)

Net Income		(274	)

On July 31, 2019, we completed the sale of PE Facility Solutions, LLC (“PEFS”), a majority-owned subsidiary of the Company, to

Kellermeyer Bergensons Services for $23,750.

Prestige Capital Finance, LLC

Balance Sheet	As of March 31, 2020
Current assets	$	21,747
Noncurrent assets		92
Total Assets		21,839

Current liabilities		17,706
Noncurrent liabilities		639
Total Liabilities		18,345

Net Equity	$	3,494

Statement of Operations	For the three months ended March 31, 2020
Gross Revenues	$	1,921
SG&A Expenses		(1,252	)

Net Income		669

F-30

10. SUBSEQUENT EVENTS

In April 2020:

•

we bought $550 of par value of Apache Corporation unsecured bond at approximately 86% of par value.

•

$2,000 of par value of Viasat, Inc. receivable was redeemed at 100% of par value.

•

$5,000 of par value of Duff & Phelps 1^st lien revolver was redeemed at 100% of par value.

•

we bought $2,000 of par value of Viasat, Inc. receivable at 90% of par value.

•

we bought $1,004 of par value of Avanti Communications Group, plc 1.25 lien delayed draw term loan at 100% of par value.

•

we sold $2,000 of par value of Finastra Group Holdings, Ltd at 85% of par value.

•

we sold $2,000 of par value of Mitchell International, Inc. at 85% of par value.

The recent global outbreak of Coronavirus Disease 2019 (“COVID-19”) has disrupted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business closures and restricting travel. Such actions are creating disruption in global supply chains and adversely impacting a number of industries. The outbreak may have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19.

The operational and financial performance of the portfolio companies in which we make investments has been and may further be significantly impacted by COVID-19, which may in turn impact the valuation of our investments, results of our operations and cash flows. For example, we do not currently meet the minimum asset coverage ratio of 150% due to the devaluation of the assets of our portfolio companies.

F-31

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GECCN Great Elm Capital Corporation