Edgar Filing: Stellus Capital Investment Corp

Filed Pursuant to Rule 497
Securities Act File No. 333-216138

Stellus Capital Investment Corporation

Supplement No. 1, dated November 13, 2017
to
Prospectus Supplement, dated August 23, 2017

This supplement contains information which amends, supplements or modifies certain information contained in the Prospectus of Stellus Capital Investment Corporation (the “Company”), dated April 3, 2017, as supplemented by the Prospectus Supplement, dated August 23, 2017. Capitalized terms used but not otherwise defined herein shall have the same meaning given to them in the Prospectus Supplement or Prospectus, as applicable.

You should carefully consider the “Risk Factors” beginning on page 17 of the Prospectus before you decide to invest.

STATUS OF OUR OFFERING

On August 23, 2017, we established an at-the-market program to which this Supplement No. 1 and the Prospectus Supplement, dated August 23, 2017, relate, and through which we may sell, from time to time at our sole discretion, up to $50.0 million of our common stock. The proceeds raised, the related underwriting fees, the offering expenses and the price at which these shares were issued from the period of August 23, 2017 through November 10, 2017 are as follows:

Fiscal Year 2017 Issuance of Common Stock	Number of Shares		Gross Proceeds		Sales Agent Commissions		Offering Expenses		Average Offering Price
Fourth Quarter (through November 10, 2017)		91,466	$	1,249,923	$	12,798	$	-	$	13.68
Third Quarter ended September 30, 2017		211,956		2,900,376		43,506		65,954		13.68
Total		303,422	$	4,150,299	$	56,304	$	65,954	$	13.68

FILING OF FORM 10-Q

On November 9, 2017, we filed our Quarterly Report on Form 10-Q (“Form 10-Q”) for the quarter ended September 30, 2017 with the Securities and Exchange Commission. We have attached the Form 10-Q to this supplement as Annex A.

Annex A

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 September 30, 2017

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

COMMISSION FILE NUMBER: 1-35730

STELLUS CAPITAL INVESTMENT CORPORATION

( Exact Name of Registrant as Specified in Its Charter)

Maryland		46-0937320
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

4400 Post Oak Parkway, Suite 2200

Houston, Texas 77027

(Address of Principal Executive Offices) (Zip Code)

(713) 292-5400

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

(do not check if a smaller reporting company)

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

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

The number of shares of the issuer’s Common Stock, $0.001 par value per share, outstanding as of November 3, 2017 was 15,945,879.

STELLUS CAPITAL INVESTMENT CORPORATION

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Assets and Liabilities as of September 30, 2017 (unaudited) and December 31, 2016	2
	Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2017 and 2016 (unaudited)	3
	Consolidated Statements of Changes in Net Assets for the nine-month periods ended September 30, 2017 and 2016 (unaudited)	4
	Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2017 and 2016 (unaudited)	5
	Consolidated Schedules of Investments as of September 30, 2017 (unaudited) and December 31, 2016	6
	Notes to Unaudited Consolidated Financial Statements	19
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 4.	Controls and Procedures	64
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66

PART I — FINANCIAL INFORMATION

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

	September 30,
	2017			December 31,
	(unaudited)			2016
ASSETS
Non-controlled, affiliated investments, at fair value (amortized cost of $1,052,185 and $0, respectively)	$	940,000		$	—
Non-controlled, non-affiliated investments, at fair value (amortized cost of $351,197,270 and $362,217,251, respectively)		354,357,607			365,625,891
Cash and cash equivalents		11,666,805			9,194,129
Interest receivable		4,143,998			4,601,742
Accounts receivable		3,806			748
Prepaid loan structure fees		47,453			—
Prepaid expenses		138,165			456,219
Total Assets	$	371,297,834		$	379,878,729
LIABILITIES
Notes Payable	$	47,220,425		$	24,565,891
Credit facility payable		35,544,028			115,171,208
SBA Debentures		63,585,342			63,342,036
Dividends payable		1,796,308			1,413,982
Base management fees payable		1,546,781			1,608,295
Incentive fees payable		619,617			1,353,271
Interest payable		694,917			973,812
Directors' fees payable		83,000			—
Unearned revenue		128,094			19,955
Administrative services payable		313,595			272,511
Deferred Tax Liability		—			8,593
Other accrued expenses and liabilities		229,685			267,390
Total Liabilities	$	151,761,792		$	208,996,944
Net Assets	$	219,536,042		$	170,881,785
NET ASSETS
Common Stock, par value $0.001 per share (200,000,000 shares authorized, 15,854,413 and 12,479,959 shares issued and outstanding, respectively)	$	15,854		$	12,480
Paid-in capital		226,842,884			180,994,723
Accumulated net realized loss		(8,589,708	)		(13,089,671	)
Distributions in excess of net investment income		(1,781,150	)		(435,794	)
Net unrealized appreciation on investments and cash equivalents, net of provision for taxes of $0 and $8,593, respectively		3,048,162			3,400,047
Net Assets	$	219,536,042		$	170,881,785
Total Liabilities and Net Assets	$	371,297,834		$	379,878,729
Net Asset Value Per Share	$	13.85		$	13.69

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	For the			For the			For the			For the
	three months			three months			nine months			nine months
	ended			ended			ended			ended
	September 30,			September 30,			September 30,			September 30,
	2017			2016			2017			2016
INVESTMENT INCOME
Interest income	$	9,728,749		$	9,773,863		$	28,847,532		$	28,477,016
Other income		249,596			428,890			1,389,158			816,739
Total Investment Income	$	9,978,345		$	10,202,753		$	30,236,690			29,293,755
OPERATING EXPENSES
Management fees	$	1,546,781		$	1,574,354		$	4,634,318		$	4,673,568
Valuation fees		137,445			157,179			326,839			357,346
Administrative services expenses		313,256			244,303			933,214			782,230
Incentive fees		462,743			1,110,297			2,718,586			3,121,395
Professional fees		356,654			177,410			803,818			564,724
Directors' fees		83,000			73,000			254,000			251,000
Insurance expense		111,680			119,323			331,398			355,376
Interest expense and other fees		2,042,608			2,037,782			5,892,047			5,932,814
Deferred offering costs		-			-			-			261,761
Other general and administrative expenses		145,494			100,362			481,700			340,406
Total Operating Expenses		5,199,661			5,594,010			16,375,920			16,640,620
Loss on extinguishment of debt		302,732			-			302,732			-
Net Investment Income	$	4,475,952		$	4,608,743		$	13,558,038		$	12,653,135
Net Realized Gain (Loss) on Investments and Cash Equivalents	$	5,211,960		$	(898,189	)	$	4,499,963		$	(895,809	)
Net Change in Unrealized Appreciation (Depreciation) on Investments and Cash Equivalents	$	(4,051,314	)	$	6,176,947		$	(360,478	)	$	5,361,794
Benefit for taxes on investments at Taxable Subsidiaries	$	-		$	39,965		$	8,593		$	362,116
Net Increase in Net Assets Resulting from Operations	$	5,636,598		$	9,927,466		$	17,706,116		$	17,481,236
Net Investment Income Per Share	$	0.29		$	0.37		$	0.93		$	1.01
Net Increase in Net Assets Resulting from Operations Per Share	$	0.36		$	0.80		$	1.22		$	1.40
Weighted Average Shares of Common Stock Outstanding		15,668,415			12,479,958			14,510,408			12,479,959
Distributions Per Share	$	0.34		$	0.34		$	1.02		$	1.02

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

	For the			For the
	nine months			nine months
	ended			ended
	September 30,			September 30,
	2017			2016
Increase in Net Assets Resulting from Operations
Net investment income	$	13,558,038		$	12,653,135
Net realized gain (loss) on investments and cash equivalents		4,499,963			(895,809	)
Net change in unrealized appreciation (depreciation) on investments and cash equivalents		(360,478	)		5,361,794
Benefit for taxes on investments at Taxable Subsidiaries		8,593			362,116
Net Increase in Net Assets Resulting from Operations		17,706,116			17,481,236
Stockholder distributions
Net investment income		(14,903,394	)		(12,726,304	)
Total Distributions		(14,903,394	)		(12,726,304	)
Capital share transactions
Issuance of common stock		47,491,626			—
Sales load		(1,340,131	)		—
Offering costs		(299,961	)		—
Net increase in net assets resulting from capital share transactions		45,851,535			—
Total increase in net assets		48,654,257			4,754,932
Net assets at beginning of period		170,881,785			164,651,104
Net assets at end of period (includes $1,781,150 and $852,791 of distributions in excess of net investment income, respectively)	$	219,536,042		$	169,406,036

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	For the			For the
	nine months			nine months
	ended			ended
	September 30, 2017			September 30, 2016
Cash flows from operating activities
Net increase in net assets resulting from operations	$	17,706,116		$	17,481,236
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Purchases of investments		(117,683,094	)		(37,392,617	)
Proceeds from sales and repayments of investments		133,380,057			35,618,611
Net change in unrealized appreciation (depreciation) on investments		360,478			(5,361,794	)
Deferred tax benefit		(8,593	)		(362,116	)
Increase in investments due to PIK		(347,482	)		(165,110	)
Amortization of premium and accretion of discount, net		(881,710	)		(830,040	)
Amortization of loan structure fees		372,820			392,702
Amortization of deferred financing costs		165,763			244,197
Loss on extinguishment of debt		302,732			—
Amortization of loan fees on SBIC debentures		243,306			137,077
Net realized loss (gain) on investments		(4,499,963	)		895,809
Deferred offering cost		—			261,761
Changes in other assets and liabilities
Changes in other assets and liabilities
Decrease in interest receivable		457,744			562,019
Decrease (increase) in accounts receivable		(3,058	)		7,684
Decrease in prepaid expenses and fees		318,054			328,105
Increase (decrease) in management fees payable		(61,514	)		55,575
Increase in directors' fees payable		83,000			—
Increase (decrease) in incentive fees payable		(733,654	)		829,074
Increase (decrease) in administrative services payable		41,084			(158,223	)
Decrease in interest payable		(278,895	)		(161,952	)
Increase (decrease) in unearned revenue		108,139			(15,104	)
Increase in dividend payable		382,326			—
Increase (decrease) in other accrued expenses and liabilities		(37,706	)		123,625
Net cash provided by (used in) operating activities		29,385,950			12,490,519
Cash flows from financing activities
Proceeds from notes issued		48,875,000			—
Financing costs paid on Credit Facility		(47,453	)		—
Proceeds from the issuance of common stock		47,491,626			—
Sales load for common stock issued		(1,340,131	)		—
Offering costs paid for common stock issued		(299,961	)		—
Stockholder distributions paid		(14,903,394	)		(12,726,304	)
Financing costs paid for Notes issued		(1,688,961	)		—
Repayments on Notes issued		(25,000,000	)		—
Borrowings under credit facility		116,000,000			28,250,000
Repayments of credit facility		(196,000,000	)		(30,250,000	)
Net cash used in financing activities		(26,913,274	)		(14,726,304	)
Net increase (decrease) in cash and cash equivalents		2,472,676			(2,235,785	)
Cash and cash equivalents balance at beginning of period		9,194,129			10,875,790
Cash and cash equivalents balance at end of period		11,666,805			8,640,005
Supplemental and non-cash financing activities
Supplemental and non-cash financing activities
Interest expense paid		5,384,053			5,315,790
Excise tax paid		37,648			—
Conversion from debt to equity		864,101			—

Stellus Capital Investment Corporation

Consolidated Schedule of Investments – (unaudited)

September 30, 2017

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

Non-controlled, affiliated investments	(2)
Glori Energy Production Inc.								Houston, TX
Glori Energy Production, LLC Class A Common Units	(4)	Equity						Energy: Oil & Gas	1,000 shares		1,052,185		940,000		0.43	%
Subtotal Non-controlled, affiliated investments											1,052,185		940,000		0.43	%

Non-controlled, non-affiliated investments	(2)
Abrasive Products & Equipment, LLC, et al								Deer Park, TX
Term Loan (SBIC)	(2)(12)	Second Lien	L+10.50%	1.00%	11.84%		3/5/2020	Chemicals, Plastics, & Rubber	$5,325,237	$	5,267,178	$	5,190,000		2.36	%
APE Holdings, LLC Class A Common Units	(4)	Equity							375,000 units		375,000		240,000		0.11	%
Total											5,642,178		5,430,000		2.47	%
Apex Environmental Resources Holdings, LLC								Amsterdam, OH
Common Units	(4)	Equity						Environmental Industries	673 shares		673		589		0.00	%
Preferred Units	(4)	Equity							673 shares		672,600		589,411		0.27	%
Total											673,273		590,000		0.27	%
Atmosphere Aggregator Holdings II, LP								Atlanta, GA
Common Units	(4)	Equity						Services: Business	254,250 units		254,250		756,990		0.34	%
Atmosphere Aggregator Holdings, LP Common Units	(4)	Equity							750,000 units		750,000		2,233,010		1.02	%
Total											1,004,250		2,990,000		1.36	%
ASC Communications, LLC	(7)							Chicago, IL
Term Loan (SBIC)	(2)(12)	First Lien	L+6.25%	1.00%	7.58%		6/29/2022	Healthcare & Pharmaceuticals	$7,481,250		7,409,491		7,410,000		3.38	%
ASC Communications Holdings, LLC Class A Preferred Units (SBIC)	(2)(4)	Equity							73,529 shares		500,000		500,000		0.23	%
Total											7,909,491		7,910,000		3.61	%
Beneplace, LLC								Austin TX
Term Loan (SBIC)	(2)(12)	Second Lien	L+10.00%	1.00%	11.34%		9/27/2022	Insurance	$5,000,000		4,906,720		5,000,000		2.28	%
Beneplace Holdings, LLC Preferred Units	(4)	Equity							500,000 units		500,000		500,000		0.23	%
Total											5,406,720		5,500,000		2.51	%
Binder & Binder National Social Security Disability Advocates, LLC	(8)							Hauppauge, NY
Residual claim from Term Loan	(4)	Unsecured						Services: Consumer	$550,000		550,000		510,000		0.23	%
BW DME Acquisition, LLC								Tempe, AZ
Term Loan (SBIC)	(2)(12)(13)	First Lien	L+6.00%	1.00%	9.08%		8/24/2022	Healthcare & Pharmaceuticals	$9,550,000		9,269,154		9,270,000		4.22	%
BW DME Holdings, LLC Class A Preferred Units	(4)	Equity							1,000,000 shares		1,000,000		1,000,000		0.46	%
Total											10,269,154		10,270,000		4.68	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments – (unaudited)

September 30, 2017

Investments	Footnotes	Security	Coupon	LIBOR floor	Cash	PIK	Maturity	Headquarters/ Industry	Principal Amount/ Shares	Amortized Cost		Fair Value⁽¹⁾		% of Net Assets
C.A.R.S. Protection Plus, Inc.								Murrysville, PA
Term Loan	(12)	First Lien	L+8.50%	0.50%	9.73%		12/31/2020	Automotive	$98,746		97,359		98,746		0.04	%
Term Loan (SBIC)	(2)(12)	First Lien	L+8.50%	0.50%	9.73%		12/31/2020		$7,702,191		7,593,999		7,700,000		3.51	%
CPP Holdings LLC Class A Common Units	(4)	Equity							149,828 shares		149,828		260,000		0.12	%
Total											7,841,186		8,058,746		3.67	%
Catapult Learning, LLC et al								Camden, NJ
Term Loan	(13)	First Lien	L+6.50%	1.00%	9.23%		7/16/2020	Education	$12,500,000		12,422,124		12,440,000		5.67	%
Colford Capital Holdings, LLC								New York, NY
Delay Draw Term Loan #1	(5)	Unsecured	12.00%		12.00%		5/31/2018	Finance	$12,500,000		12,451,470		12,500,000		5.69	%
Delay Draw Term Loan #2	(5)	Unsecured	12.00%		12.00%		5/31/2018		$2,000,000		1,990,217		2,000,000		0.91	%
Delay Draw Term Loan #4	(5)	Unsecured	12.00%		12.00%		5/31/2018		$5,000,000		4,980,364		5,000,000		2.28	%
Colford Capital Holdings, LLC Preferred Units	(4)(5)	Equity							38,893 units		557,143		610,000		0.28	%
Total											19,979,194		20,110,000		9.16	%
Douglas Products & Packaging Company, LLC								Liberty, MO
Term Loan (SBIC)	(2)(12)	Second Lien	L+10.50%	0.50%	11.84%		12/31/2020	Chemicals, Plastics, & Rubber	$9,000,000		8,895,337		9,000,000		4.10	%
Fumigation Holdings, Inc. Class A Common Stock	(4)	Equity							250 shares		250,000		510,000		0.23	%
Total											9,145,337		9,510,000		4.33	%
Dream II Holdings, LLC								Boca Raton, FL
Class A Common Units	(4)	Equity						Services: Consumer	250,000 units		242,304		380,000		0.17	%
Empirix Inc.								Billerica, MA
Term Loan	(12)	Second Lien	L+9.50%	1.00%	10.81%		5/1/2020	Software	$11,657,850		11,545,160		11,657,850		5.31	%
Term Loan (SBIC)	(2)(12)	Second Lien	L+9.50%	1.00%	10.81%		5/1/2020		$9,750,000		9,654,202		9,750,000		4.44	%
Empirix Holdings I, Inc. Common Shares, Class A	(4)	Equity							1,304 shares		1,304,232		930,600		0.42	%
Empirix Holdings I, Inc. Common Shares, Class B	(4)	Equity							1,317,406 shares		13,174		9,400		0.00	%
Total											22,516,768		22,347,850		10.17	%
Energy Labs Inc.								Houston, TX
Term Loan (SBIC)	(2)(13)	First Lien	L+7.00%	0.50%	11.25%		9/29/2021	Energy: Oil & Gas	$5,300,000		5,210,391		5,300,000		2.41	%
Energy Labs Holding Corp. Common Stock	(4)	Equity							500 shares		500,000		410,000		0.19	%
Total											5,710,391		5,710,000		2.60	%
EOS Fitness OPCO Holdings, LLC								Phoenix, AZ
Term Loan (SBIC)	(2)(12)	First Lien	L+8.75%	0.75%	9.99%		12/30/2019	Hotel, Gaming, & Leisure	$3,215,429		3,182,293		3,215,429		1.46	%
EOS Fitness Holdings, LLC Class A Preferred Units	(4)	Equity							118 shares		117,670		195,000		0.09	%
EOS Fitness Holdings, LLC Class B Common Units	(4)	Equity							3,017 shares		3,017		5,000		0.00	%
Total											3,302,980		3,415,429		1.55
Furniture Factory Outlet, LLC								Fort Smith, AR
Term Loan	(12)	First Lien	L+9.00%	0.50%	10.34%		6/10/2021	Consumer Goods: Durable	$7,288,484		7,174,121		7,288,484		3.32	%
Furniture Factory Holdings, LLC Term Loan	(11)	Unsecured	11.00%				2/3/2021		$122,823		122,823		120,000		0.05	%
Sun Furniture Factory, LP Common Units	(4)	Equity							13,445 shares		94,569		210,000		0.10	%
Total											7,391,513		7,618,484		3.47	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments – (unaudited)

September 30, 2017

Investments	Footnotes	Security	Coupon	LIBOR floor	Cash	PIK	Maturity	Headquarters/ Industry	Principal Amount/ Shares	Amortized Cost		Fair Value⁽¹⁾		% of Net Assets
GK Holdings, Inc.								Cary, NC
Term Loan	(12)	Second Lien	L+10.25%	1.00%	11.58%		1/30/2022	Education	$5,000,000		4,929,497		5,000,000		2.28	%
Good Source Solutions, Inc.								Carlsbad, CA
Term Loan	(13)	First Lien	L+7.25%	0.50%	11.62%		7/15/2021	Beverage, Food, & Tobacco	$1,350,000		1,328,254		1,350,000		0.61	%
Term Loan (SBIC)	(2)(13)	First Lien	L+7.25%	0.50%	11.62%		7/15/2021		$1,200,000		1,180,670		1,200,000		0.55	%
Good Source Holdings, LLC Class A Preferred Units	(4)	Equity							159 shares		159,375		170,000		0.08	%
Good Source Holdings, LLC Class B Common Units	(4)	Equity							4,482 shares		0		0		0.00	%
Total											2,668,299		2,720,000		1.24	%
Grupo HIMA San Pablo, Inc., et al								San Juan, PR
Term Loan	(3)	First Lien	L+7.00%	1.50%	8.50%		1/31/2018	Healthcare & Pharmaceuticals	$4,766,667		4,758,981		4,340,000		1.98	%
Term Loan		Second Lien	13.75%		13.75%		7/31/2018		$4,109,524		4,067,690		2,010,000		0.92	%
Total											8,826,671		6,350,000		2.90	%
Hostway Corporation								Chicago, IL
Term Loan	(4)(12)	Second Lien	L+8.75%	1.25%	0.00%		12/13/2020	High Tech Industries	$6,750,000		6,675,175		5,910,000		2.69	%
HUF Worldwide, LLC	(9)							Los Angeles, CA
Term Loan	(12)	First Lien	L+9.00%	0.50%	10.30%		10/22/2019	Retail	$3,651,709		3,613,358		3,650,000		1.66	%
Term Loan (SBIC)	(2)(12)	First Lien	L+9.00%	0.50%	10.30%		10/22/2019		$6,138,648		6,082,112		6,138,648		2.80	%
HUF Holdings, LLC Common Class A Units	(4)	Equity							616,892 units		624,427		330,000		0.15	%
Total											10,319,897		10,118,648		4.61	%
Keais Records Service, LLC								Houston, TX
Term Loan	(12)	Second Lien	L+10.50%	0.50%	11.84%		6/30/2022	Services: Business	$7,750,000		7,633,118		7,750,000		3.53	%
Keais Holdings, LLC Class A Units	(4)	Equity							148,335 units		775,000		770,000		0.35	%
Total											8,408,118		8,520,000		3.88	%
KidKraft, Inc.								Dallas, TX
Term Loan	(6)	Second Lien	12.00%		11.00%	1.00%	3/30/2022	Consumer Goods: Durable	$9,292,027		9,132,335		9,200,000		4.19	%
Livingston International, Inc.								Toronto, Ontario
Term Loan	(5)(12)	Second Lien	L+8.25%	1.25%	9.58%		4/18/2020	Transportation: Cargo	$6,841,739		6,780,602		6,840,000		3.12	%
Madison Logic, Inc.								New York, NY
Term Loan (SBIC)	(2)(12)	First Lien	L+8.00%	0.50%	9.24%		11/30/2021	Media: Broadcasting & Subscription	$4,906,250		4,863,954		4,906,250		2.23	%
Madison Logic Holdings, Inc. Common Stock (SBIC)	(2)(4)	Equity							5,000 shares		50,000		64,000		0.03	%
Madison Logic Holdings, Inc. Series A Preferred Stock (SBIC)	(2)(4)	Equity							4,500 shares		450,000		576,000		0.26	%
Total											5,363,954		5,546,250		2.52	%
Mobileum, Inc.								Santa Clara, CA
Term Loan	(12)	Second Lien	L+10.25%	0.75%	11.59%		5/1/2022	Software	$9,000,000		8,842,705		9,000,000		4.10	%
Mobile Acquisition Holdings, LP Class A-2 Common Units	(4)	Equity							750 units		750,000		830,000		0.38	%
Total											9,592,705		9,830,000		4.48	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments – (unaudited)

September 30, 2017

Investments	Footnotes	Security	Coupon	LIBOR floor	Cash	PIK	Maturity	Headquarters/ Industry	Principal Amount/ Shares	Amortized Cost		Fair Value⁽¹⁾		% of Net Assets
MBS Holdings, Inc.								Birmingham, AL
Series E Preferred Stock	(4)	Equity						Media: Broadcasting & Subscription	2,774,695 shares		1,000,000		1,657,438		0.75	%
Series F Preferred Stock	(4)	Equity							399,308 shares		206,682		342,562		0.16	%
Total											1,206,682		2,000,000		0.91	%
MTC Parent, L.P.								Oak Brook, IL
Class A-2 Common Units	(4)	Equity						Finance	750,000 shares		28,842		1,790,000		0.82	%
National Trench Safety, LLC, et al								Houston, TX
Term Loan (SBIC)	(2)	Second Lien	11.50%		11.50%		3/31/2022	Construction & Building	$10,000,000		9,838,193		10,000,000		4.56	%
NTS Investors, LP Class A Common Units	(4)	Equity							2,335 units		500,000		400,000		0.18	%
Total											10,338,193		10,400,000		4.74	%
OGS Holdings, Inc.								Chantilly, Virginia
Series A Convertible Preferred Stock	(4)	Equity						Services: Government	11,521 shares		50,001		90,000		0.04	%
Protect America, Inc.								Austin TX
Term Loan (SBIC)	(2)(6)(12)	Second Lien	L+9.75%	1.00%	9.13%	2.00%	10/30/2020	Services: Consumer	$17,529,167		17,101,553		17,100,000		7.79	%
Refac Optical Group, et al								Blackwood, NJ
Revolver	(10)(12)	First Lien	L+8.00%		9.23%		9/30/2018	Retail	$880,000		880,000		880,000		0.40	%
Term A Loan	(12)	First Lien	L+8.00%		9.23%		9/30/2018		$1,060,966		1,060,966		1,060,000		0.48	%
Term B Loan	(6)(12)	First Lien	L+10.75%		10.23%	1.75%	9/30/2018		$6,449,251		6,449,251		6,449,251		2.94	%
Total											8,390,217		8,389,251		3.82
Resolute Industrial, LLC	(14)							Wheeling, IL
Term Loan	(12)	First Lien	L+7.62%	1.00%	8.95%		7/26/2022	Capital Equipment	$3,797,222		3,724,778		3,710,000		1.69	%
Term Loan (SBIC)	(2)(12)	First Lien	L+7.62%	1.00%	8.95%		7/26/2022		$13,290,278		13,036,684		13,000,000		5.92	%
Resolute Industrial Holdings, LLC Class A Preferred Units	(4)	Equity							601 units		750,000		750,000		0.34	%
Total											17,511,462		17,460,000		7.95	%
Roberts-Gordon, LLC								Buffalo, NY
Term Loan	(12)	Second Lien	L+10.00%	1.00%	11.34%		1/1/2022	Construction & Building	$7,200,000		7,062,051		7,060,000		3.22	%
Specified Air Solutions, LLC Class A Common Unites	(4)	Equity							3,846 shares		500,045		500,000		0.23	%
Total											7,562,096		7,560,000		3.45	%
Sitel Worldwide Corporation								Nashville, TN
Term Loan	(12)	Second Lien	L+9.50	1.00%	10.81%		9/18/2022	High Tech Industries	$10,000,000		9,842,608		9,900,000		4.51	%
Skopos Financial, LLC								Irving, TX
Term Loan	(5)	Unsecured	12.00%		12.00%		1/31/2019	Finance	$20,000,000		19,861,629		19,900,000		9.06	%
Skopos Financial Group, LLC Class A Units	(4)(5)	Equity							1,120,684 units		1,162,544		760,000		0.35	%
Total											21,024,173		20,660,000		9.41	%
SPM Capital, LLC								Bloomington, MN
Term Loan	(3)	First Lien	L+6.50	1.50%	8.00%		10/31/2018	Healthcare & Pharmaceuticals	$5,599,563		5,597,302		5,599,563		2.55	%
SQAD, LLC								Tarrytown, NY
Term Loan (SBIC)	(2)(6)	Unsecured	12.25%		11.00%	1.25%	4/30/2019	Media: Broadcasting & Subscription	$7,268,386		7,220,942		7,268,386		3.31	%
SQAD Holdco, Inc. Preferred Shares, Series A (SBIC)	(2)(4)	Equity							5,624 shares		562,368		891,000		0.41	%
SQAD Holdco, Inc. Common Shares (SBIC)	(2)(4)	Equity							5,800 shares		62,485		99,000		0.05	%
Total											7,845,795		8,258,386		3.77	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments – (unaudited)

September 30, 2017

Investments	Footnotes	Security	Coupon	LIBOR floor	Cash	PIK	Maturity	Headquarters/ Industry	Principal Amount/ Shares	Amortized Cost		Fair Value⁽¹⁾			% of Net Assets
TechInsights, Inc.								Ottawa, Ontario
Term Loan	(5)(12)(13)	First Lien	L+6.50%	1.00%	8.72%		8/16/2022	High Tech Industries	$20,000,000		19,509,252		19,510,000			8.89	%
Time Manufacturing Acquistion, LLC								Waco, TX
Term Loan	(6)	Unsecured	11.50%		10.75%	0.75%	8/3/2023	Capital Equipment	$6,361,305		6,243,502		6,360,000			2.90	%
Time Manufacturing Investments, LLC Class A Common Units	(4)	Equity							5,000 units		500,000		400,000			0.18	%
Total											6,743,502		6,760,000			3.08	%
TFH Reliability, LLC								Houston, TX
Term Loan (SBIC)	(2)(12)	Second Lien	L+10.75%	0.50%	12.09%		4/21/2022	Chemicals, Plastics, & Rubber	$5,875,000		5,771,794		5,875,000			2.68	%
TFH Reliability Group, LLC Class A Common Units	(4)	Equity							250,000 shares		250,000		280,000			0.13	%
Total											6,021,794		6,155,000			2.81	%
U.S. Auto Sales, Inc. et al								Lawrenceville, GA
Term Loan	(5)(12)	Second Lien	L+11.75%	1.00%	12.99%		6/8/2020	Finance	$4,500,000		4,472,766		4,500,000			2.05	%
USASF Blocker II, LLC Common Units	(4)(5)	Equity							441 units		441,000		607,600			0.28	%
USASF Blocker LLC Common Units	(4)(5)	Equity							9,000 units		9,000		12,400			0.01	%
Total											4,922,766		5,120,000			2.34	%
VRI Intermediate Holdings, LLC								Franklin, OH
Term Loan (SBIC)	(2)(12)	Second Lien	L+9.25%	1.00%	10.59%		10/31/2020	Healthcare & Pharmaceuticals	$9,000,000		8,834,759		8,820,000			4.02	%
VRI Ultimate Holdings, LLC Class A Preferred Units	(4)	Equity							326,797 shares		500,000		520,000			0.24	%
Total											9,334,759		9,340,000			4.26	%
Wise Holding Corporation								Salt Lake City, UT
Term Loan	(12)	Unsecured	L+11.00%	1.00%	12.34%		12/31/2021	Beverage, Food, & Tobacco	$1,250,000		1,234,484		1,010,000			0.46	%
WCI Holdings LLC Class A Preferred Units	(4)	Equity							56 units		55,550		0			0.00	%
WCI Holdings LLC Class B Common Units	(4)	Equity							3,044 units		3,044		0			0.00	%
Total											1,293,078		1,010,000			0.46	%
Zemax, LLC								Redmond, WA
Term Loan (SBIC)	(2)(12)	Second Lien	L+10.00%	1.00%	11.24%		4/23/2020	Software	$3,962,500		3,919,079		3,960,000			1.80	%
Zemax Software Holdings, LLC Preferred Units (SBIC)	(2)(4)	Equity							24,500 units		5,000		9,400			0.00	%
Zemax Software Holdings, LLC Common Units (SBIC)	(2)(4)	Equity							5,000 shares		245,000		460,600			0.21	%
Total											4,169,079		4,430,000			2.01	%

Total Non-controlled, non-affiliated investments											351,197,270		354,357,607			161.41	%
Net Investments											352,249,455		355,297,607			161.84	%
LIABILITIES IN EXCESS OF OTHER ASSETS													(135,761,565	)		(61.84	)%
NET ASSETS												$	219,536,042			100.00	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments – (unaudited)

September 30, 2017

(1)

See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of the methodologies used to value securities in the portfolio.

(2)

Investments held by the SBIC Subsidiary, which include $6,696,574 of cash and $143,369,190 of investments (at par) are excluded from the obligations to the lenders of the Credit Facility. The Company’s obligations to the lenders of the Credit Facility, as defined in Note 9, are secured by a first priority security interest in all investments and cash and cash equivalents, except for investments held by the SBIC Subsidiary.

(3)

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

(4)

Security is non-income producing.

(5)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. The Company may not acquire any non-qualifying assets unless, at the time of the acquisition, qualifying assets represent at least 70% of the Company’s total assets. Qualifying assets represent approximately 79% of the Company’s total assets as of September 30, 2017.

(6)

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

(7)

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

(8)

In the fourth quarter of 2016, Binder & Binder National Social Security Disability, emerged from Chapter 11 Bankruptcy in the U.S. Bankruptcy Court, Southern District of New York. The investment’s fair value has been adjusted to reflect the court-approved unsecured claim distribution proceeds that have been awarded to the Company. As of this time, the Company does not expect to receive any additional repayment other than the court awarded amount.

(9)

Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,250,000, with an interest rate of LIBOR plus 9.00% and a maturity of October 22, 2019. This investment is accruing an unused commitment fee of 0.50% per annum.

(10)

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

(11)

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

(12)

These loans have LIBOR floors which are lower than the applicable LIBOR rates; therefore, the floors are not in effect.

(13)

These loans are last-out term loans with contractual rates higher than the applicable LIBOR rates; therefore, the floors are not in effect.

(14)

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

Abbreviation Legend

PIK — Payment-In-Kind

L — LIBOR

Euro — Euro Dollar

Stellus Capital Investment Corporation

Consolidated Schedule of Investments

December 31, 2016

									Principal			% of
				LIBOR				Headquarters/	Amount/	Amortized	Fair	Net
Investments	Footnotes	Security	Coupon	floor	Cash	PIK	Maturity	Industry	Shares	Cost	Value⁽¹⁾	Assets
Non-controlled, non-affiliated investments	(2)
Abrasive Products & Equipment, LLC, et al								Deer Park, TX
Term Loan (SBIC)	(2)(3)	Second Lien	L+10.50%	1.00%	11.50%		3/5/2020	Chemicals, Plastics, & Rubber	$ 5,325,237	$ 5,252,426	$ 5,277,059	3.09	%
APE Holdings, LLC Class A Units	(4)	Equity							375,000 units	375,000	399,550	0.23	%
Total										5,627,426	5,676,609	3.32	%
Apex Environmental Resources Holdings, LLC								Amsterdam, OH
Common Units	(4)	Equity						Environmental Industries	517 shares	517	525	0.00	%
Preferred Units	(4)	Equity							517 shares	517,439	524,911	0.31	%
Total										517,956	525,436	0.31	%
Atkins Nutritionals Holdings II, Inc.								Denver, CO
Term Loan	(3)	Second Lien	L+8.50%	1.25%	9.75%		4/3/2019	Beverage, Food, & Tobacco	$ 8,000,000	7,928,373	8,000,000	4.68	%
Binder & Binder National Social Security Disability Advocates, LLC								Hauppauge, NY
Residual Claim From Term Loan	(4)(14)	Unsecured						Services: Consumer	$ 1,000,000	1,000,000	722,059	0.42	%
Calero Software, LLC et al								Rochester, NY
Term Loan	(3)	Second Lien	L+9.50%	1.00%	10.50%		6/5/2019	Telecommunications	$ 7,500,000	7,422,928	7,441,535	4.35	%
Managed Mobility Holdings, LLC Partnership Units	(4)	Equity							8,932 units	525,000	152,855	0.09	%
Total										7,947,928	7,594,390	4.44	%
C.A.R.S. Protection Plus, Inc								Murrysville, PA
Term Loan	(12)	First Lien	L+8.50%	0.50%	9.03%		12/31/2020	Automotive	$ 101,911	100,207	101,911	0.06	%
Term Loan (SBIC)	(2)(12)	First Lien	L+8.50%	0.50%	9.03%		12/31/2020		$ 7,949,027	7,785,147	7,949,027	4.65	%
CPP Holdings LLC Class A Common Units	(4)	Equity							149,828 shares	149,828	250,166	0.15	%
Total										8,035,182	8,301,104	4.86	%
Catapult Learning, LLC et al								Camden, NJ
Term Loan	(13)	First Lien	L+6.50%	1.00%	8.99%		7/16/2020	Education	$12,500,000	12,404,725	12,498,701	7.31	%
Colford Capital Holdings, LLC								New York, NY
Delay Draw Term Loan #1	(5)	Unsecured	12.00%		12.00%		5/31/2018	Finance	$12,500,000	12,401,505	12,477,883	7.30	%
Delay Draw Term Loan #2	(5)	Unsecured	12.00%		12.00%		5/31/2018		$ 2,000,000	1,980,173	1,996,461	1.17	%
Delay Draw Term Loan #4	(5)	Unsecured	12.00%		12.00%		5/31/2018		$ 5,000,000	4,960,146	4,991,153	2.92	%
CC Blocker 1, LLC Preferred Units	(4)(5)	Equity							38,893 units	557,143	671,462	0.39	%
Total										19,898,967	20,136,959	11.78	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments — (continued)

December 31, 2016

									Principal			% of
				LIBOR				Headquarters/	Amount/	Amortized	Fair	Net
Investments	Footnotes	Security	Coupon	floor	Cash	PIK	Maturity	Industry	Shares	Cost	Value⁽¹⁾	Assets
Doskocil Manufacturing Company, Inc.								Arlington, TX
Term Loan (SBIC)	(2)(13)	First Lien	L+6.00%	1.00%	9.40%		11/10/2020	Consumer goods: non-durable	$ 8,750,000	$ 8,626,143	$ 8,750,000	5.12	%
Douglas Products & Packaging Company, LLC								Liberty, MO
Term Loan (SBIC)	(2)(12)	Second Lien	L+10.50%	0.50%	11.50%		12/31/2020	Chemicals, Plastics, & Rubber	$ 9,000,000	8,876,203	9,000,000	5.27	%
Fumigation Holdings, Inc. Class A Common Stock	(4)	Equity							250 shares	250,000	478,950	0.28	%
Total										9,126,203	9,478,950	5.55	%
Eating Recovery Center, LLC								Denver, CO
Term Loan	(6)	Unsecured	13.00%		12.00%	1.00%	6/28/2018	Healthcare & Pharmaceuticals	$18,400,000	18,271,406	18,348,093	10.74	%
ERC Group Holdings LLC Class A Units	(4)	Equity							17,820 units	1,655,274	2,631,558	1.54	%
Total										19,926,680	20,979,651	12.28	%
Empirix Inc.								Billerica, MA
Term Loan	(3)	Second Lien	L+9.50%	1.00%	10.50%		5/1/2020	Software	$11,657,850	11,517,953	11,582,173	6.78	%
Term Loan (SBIC)	(2)(3)	Second Lien	L+9.50%	1.00%	10.50%		5/1/2020		$ 9,750,000	9,631,895	9,686,708	5.67	%
Empirix Holdings I, Inc. Common Shares, Class A .	(4)	Equity							1,304 shares	1,304,232	1,659,024	0.97	%
Empirix Holdings I, Inc. Common Shares, Class B .	(4)	Equity							1,317,406 shares	13,174	16,758	0.01	%
Total										22,467,254	22,944,663	13.43	%
Energy Labs Inc.								Houston, TX
Term Loan (SBIC)	(2)(13)	First Lien	L+7.00%	0.50%	11.03%		9/29/2021	Energy: Oil & Gas	$ 5,300,000	5,197,928	5,290,561	3.10	%
Energy Labs Holding Corp. Common Stock	(4)	Equity							500 shares	500,000	500,000	0.29	%
Total										5,697,928	5,790,561	3.39	%
EOS Fitness OPCO Holdings, LLC								Phoenix, AZ
Term Loan (SBIC)	(2)(3)	First Lien	L+8.75%	0.75%	9.50%		12/30/2019	Hotel, Gaming, & Leisure	$ 3,331,184	3,287,412	3,331,184	1.95	%
EOS Fitness Holdings, LLC Class A Preferred Units	(4)	Equity							118 shares	117,670	77,414	0.05	%
EOS Fitness Holdings, LLC Class B Common Units	(4)	Equity							3,017 shares	3,017	1,985	0.00	%
Total										3,408,099	3,410,583	2.00
Furniture Factory Outlet, LLC								Fort Smith, AR
Term Loan	(12)	First Lien	L+9.00%	0.50%	10.00%		6/10/2021	Consumer goods: Durable	$ 9,875,000	9,695,423	9,809,056	5.74	%
Furniture Factory Holdings, LLC Term Loan	(15)	Unsecured	11.00%				2/3/2021		$ 122,823	122,823	122,823	0.07	%
Sun Furniture Factory, LP Common Units	(4)	Equity							13,445 shares	94,569	170,404	0.10	%
Total										9,912,815	10,102,283	5.91	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments — (continued)

December 31, 2016

									Principal			% of
				LIBOR				Headquarters/	Amount/	Amortized	Fair	Net
Investments	Footnotes	Security	Coupon	floor	Cash	PIK	Maturity	Industry	Shares	Cost	Value⁽¹⁾	Assets
GK Holdings, Inc.								Cary, NC
Term Loan	(3)	Second Lien	L+9.50%	1.00%	10.50%		1/30/2022	Education	$5,000,000	$ 4,920,321	$ 5,000,000	2.93	%
Glori Energy Production Inc.								Houston, TX
Term Loan	(3)(4)(6) (7)(8)	First Lien	L+12.00%	1.00%	11.00%	2.00%	3/14/2017	Energy: Oil & Gas	$1,624,250	1,622,130	864,101	0.51	%
Good Source Solutions, Inc.								Carlsbad, CA
Term Loan	(13)	First Lien	L+7.25%	0.50%	11.38%		7/15/2021	Beverage, Food, & Tobacco	$1,350,000	1,325,011	1,346,203	0.79	%
Term Loan (SBIC)	(2)(13)	First Lien	L+7.25%	0.50%	11.38%		7/15/2021		$1,200,000	1,177,788	1,196,625	0.70	%
Good Source Holdings, LLC Class A Preferred Units	(4)	Equity							159 shares	159,375	136,633	0.08	%
Good Source Holdings, LLC Class B Common Units	(4)	Equity							4,482 shares	0	0	0.00	%
Total										2,662,174	2,679,461	1.57	%
Grupo HIMA San Pablo, Inc., et al								San Juan, PR
Term Loan	(3)	First Lien	L+7.00%	1.50%	8.50%		1/31/2018	Healthcare & Pharmaceuticals	$4,812,500	4,787,801	4,693,463	2.75	%
Term Loan		Second Lien	13.75%		13.75%		7/31/2018		$4,000,000	3,924,736	3,535,591	2.07	%
Total										8,712,537	8,229,054	4.82	%
Hollander Sleep Products, LLC								Boca Raton, FL
Term Loan	(3)	First Lien	L+8.00%	1.00%	9.00%		10/21/2020	Services: Consumer	$7,286,790	7,211,543	7,286,790	4.26	%
Dream II Holdings, LLC Class A Common Units	(4)	Equity							250,000 units	242,304	145,030	0.08	%
Total										7,453,847	7,431,820	4.34	%
Hostway Corporation								Chicago, IL
Term Loan	(3)	Second Lien	L+8.75%	1.25%	10.00%		12/13/2020	High Tech Industries	$6,750,000	6,661,202	5,832,000	3.41	%
HUF Worldwide, LLC								Los Angeles, CA
Revolver	(9)(12)	First Lien	L+9.00%	0.50%	9.85%		10/22/2019	Retail	$ 375,000	375,000	375,000	0.22	%
Term Loan	(12)	First Lien	L+9.00%	0.50%	9.85%		10/22/2019		$3,651,709	3,603,959	3,651,709	2.14	%
Term Loan (SBIC)	(2)(12)	First Lien	L+9.00%	0.50%	9.85%		10/22/2019		$6,138,648	6,063,652	6,138,648	3.59	%
HUF Holdings, LLC Common Class A Units	(4)	Equity							616,892 units	624,427	624,427	0.37	%
Total										10,667,038	10,789,784	6.32	%
Keais Records Service, LLC								Houston, TX
Term Loan	(12)	Second Lien	L+10.50%	0.50%	11.50%		6/30/2022	Services: Business	$7,750,000	7,620,000	7,620,000	4.46	%
Keais Holdings, LLC Class A Units	(4)	Equity							148,335 units	775,000	775,000	0.45	%
Total										8,395,000	8,395,000	4.91	%
KidKraft, Inc.								Dallas, TX
Term Loan	(6)	Second Lien	12.00%		11.00%	1.00%	3/30/2022	Consumer Goods: Durable	$9,222,874	9,044,671	9,044,671	5.29	%
Livingston International, Inc.								Toronto, Ontario
Term Loan	(3)(5)	Second Lien	L+8.25%	1.25%	9.50%		4/18/2020	Transportation: Cargo	$6,841,739	6,765,448	6,692,648	3.92	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments — (continued)

December 31, 2016

									Principal			% of
				LIBOR				Headquarters/	Amount/	Amortized	Fair	Net
Investments	Footnotes	Security	Coupon	floor	Cash	PIK	Maturity	Industry	Shares	Cost	Value⁽¹⁾	Assets
Madison Logic, Inc.								New York, NY
Term Loan (SBIC)	(2)(12)	First Lien	L+8.00%	0.50%	8.76%		11/30/2021	Media: Broadcasting & Subscription	$ 5,000,000	$ 4,950,667	$ 4,950,667	2.90	%
Madison Logic Holdings, Inc. Common Stock (SBIC)	(2)(4)	Equity							5,000 shares	50,000	50,000	0.03	%
Madison Logic Holdings, Inc. Series A Preferred Stock (SBIC)	(2)(4)	Equity							4,500 shares	450,000	450,000	0.26	%
Total										5,450,667	5,450,667	3.19	%
Mobileum, Inc.								Santa Clara, CA
Term Loan	(12)	Second Lien	L+10.25%	0.75%	11.25%		5/1/2022	Software	$ 9,000,000	8,823,965	8,823,965	5.16	%
Mobile Acquisition Holdings, LP Class A-2 Common Units	(4)	Equity							750 units	750,000	750,000	0.44	%
Total										9,573,965	9,573,965	5.60	%
Momentum Telecom Inc., et al								Birmingham, AL
Term Loan	(3)	First Lien	L+8.50%	1.00%	9.50%		3/10/2019	Media: Broadcasting & Subscription	$ 6,468,196	6,395,759	6,403,563	3.75	%
Term Loan (SBIC)	(2)(3)	First Lien	L+8.50%	1.00%	9.50%		3/10/2019		$ 8,687,486	8,589,400	8,600,676	5.03	%
MBS Holdings, Inc. Series E Preferred Stock	(4)	Equity							2,774,695 shares	1,000,000	1,309,492	0.77	%
MBS Holdings, Inc. Series F Preferred Stock	(4)	Equity							399,308 shares	206,682	270,648	0.16	%
Total										16,191,841	16,584,379	9.71	%
MTC Intermediate Holdco, Inc.								Oak Brook, IL
Term Loan	(3)	Second Lien	L+9.50%	1.00%	10.50%		5/31/2022	Finance	$ 575,000	564,899	575,000	0.34	%
Term Loan (SBIC)	(2)(3)	Second Lien	L+9.50%	1.00%	10.50%		5/31/2022		$ 9,750,000	9,578,720	9,750,000	5.71	%
MTC Parent, L.P. Class A-2 Common Units	(4)	Equity							750,000 shares	750,000	1,433,281	0.84	%
Total										10,893,619	11,758,281	6.89	%
OG Systems, LLC								Chantilly, Virginia
Term Loan	(3)(6)	Unsecured	L+11.00%	1.00%	11.00%	1.00%	1/22/2020	Services: Government	$ 4,028,288	3,979,529	3,992,337	2.34	%
OGS Holdings, Inc. Series A Convertible Preferred Stock	(4)	Equity							11,521 shares	50,001	68,182	0.04	%
Total										4,029,530	4,060,519	2.38	%
Refac Optical Group, et al								Blackwood, NJ
Revolver	(10)(12)	First Lien	L+8.00%		8.77%		9/30/2018	Retail	$ 400,000	400,000	400,000	0.23	%
Term A Loan	(11)(12)	First Lien	L+8.00%		8.77%		9/30/2018		$ 1,502,736	1,502,736	1,502,736	0.88	%
Term B Loan	(6)(11)(12)	First Lien	L+10.75%		9.77%	1.75%	9/30/2018		$ 6,403,267	6,403,267	6,403,267	3.75	%
Total										8,306,003	8,306,003	4.86
Securus Technologies Holdings, Inc.								Dallas, TX
Term Loan	(3)	Second Lien	L+7.75	1.25%	9.00%		4/30/2021	Telecommunications	$ 8,500,000	8,455,863	8,415,000	4.92	%
Sitel Worldwide Corporation								Nashville, TN
Term Loan	(3)	Second Lien	L+9.50	1.00%	10.50%		9/18/2022	High Tech Industries	$10,000,000	9,825,536	9,550,000	5.59	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments — (continued)

December 31, 2016

									Principal			% of
				LIBOR				Headquarters/	Amount/	Amortized	Fair	Net
Investments	Footnotes	Security	Coupon	floor	Cash	PIK	Maturity	Industry	Shares	Cost	Value⁽¹⁾	Assets
Skopos Financial, LLC								Irving, TX
Term Loan	(5)	Unsecured	12.00%		12.00%		1/31/2019	Finance	$20,000,000	$19,791,938	$19,618,086	11.48	%
Skopos Financial Group, LLC Class A Units	(4)(5)	Equity							1,120,684 units	1,162,544	1,012,266	0.59	%
Total										20,954,482	20,630,352	12.07	%
SPM Capital, LLC								Bloomington, MN
Term Loan	(3)	First Lien	L+5.50	1.50%	7.00%		10/31/2017	Healthcare & Pharmaceuticals	$ 6,387,916	6,362,834	6,374,800	3.73	%
SQAD, LLC								Tarrytown, NY
Term Loan (SBIC)	(2)(6)	Unsecured	12.25%		11.00%	1.25%	4/30/2019	Media: Broadcasting & Subscription	$ 7,245,241	7,179,977	7,206,517	4.22	%
SQAD Holdco, Inc. Preferred Shares, Series A (SBIC)	(2)(4)	Equity							5,624 shares	562,368	738,067	0.43	%
SQAD Holdco, Inc. Common Shares (SBIC)	(2)(4)	Equity							5,800 shares	62,485	82,007	0.05	%
Total										7,804,830	8,026,591	4.70	%
Stratose Intermediate Holdings, II, LLC								Atlanta, GA
Term Loan	(3)	Second Lien	L+9.50%	1.00%	10.50%		7/26/2022	Services: Business	$15,000,000	14,705,967	15,000,000	8.78	%
Atmosphere Aggregator Holdings II, LP Common Units	(4)	Equity							254,250 units	254,250	630,373	0.37	%
Atmosphere Aggregator Holdings, LP Common Units	(4)	Equity							750,000 units	750,000	1,859,506	1.09	%
Total										15,710,217	17,489,879	10.24	%
360 Holdings III Corp								Irvine, CA Consumer goods:
Term Loan	(3)	First Lien	L+9.00%	1.00%	10.00%		10/1/2021	non-durable	$ 3,950,000	3,811,652	3,950,000	2.31	%
Telecommunications Management, LLC								Sikeston, MO
Term Loan	(3)	Second Lien	L+8.00%	1.00%	9.00%		10/30/2020	Media: Broadcasting & Subscription	$ 5,000,000	4,970,522	4,962,649	2.90	%
TFH Reliability, LLC		Second						Houston, TX
Term Loan (SBIC)	(2)(12)	Lien	L+10.75%	0.50%	11.75%		4/21/2022	Chemicals, Plastics, & Rubber	$ 5,875,000	5,759,983	5,759,983	3.37	%
TFH Reliability Group, LLC Class A Common Units	(4)	Equity							250,000 shares	250,000	250,000	0.15	%
Total										6,009,983	6,009,983	3.52	%
U.S. Auto Sales, Inc. et al								Lawrenceville, GA
Term Loan	(3)(5)	Second Lien	L+11.75%	1.00%	12.75%		6/8/2020	Finance	$ 4,500,000	4,466,518	4,500,000	2.63	%
USASF Blocker II, LLC Common Units	(4)(5)	Equity							441 units	441,000	469,751	0.27	%
USASF Blocker LLC Common Units	(4)(5)	Equity							9,000 units	9,000	9,587	0.01	%
Total										4,916,518	4,979,338	2.91	%
Vandelay Industries Finance, LLC, et al								La Vergne, TN
		Second						Construction &
Term Loan	(6)	Lien	11.75%		10.75%	1.00%	11/12/2019	Building	$ 2,500,000	2,485,347	2,495,701	1.46	%
Vision Media Management & Fulfillment, LLC								Valencia, CA
Term Loan (SBIC)	(2)(13)	First Lien	L+8.50%	1.00%	10.22%		1/27/2021	Media: Broadcasting & Subscription	$ 1,613,517	1,584,016	1,613,517	0.94	%

Stellus Capital Investment Corporation

Consolidated Schedule of Investments — (continued)

December 31, 2016

									Principal			% of
				LIBOR				Headquarters/	Amount/	Amortized	Fair	Net
Investments	Footnotes	Security	Coupon	floor	Cash	PIK	Maturity	Industry	Shares	Cost	Value⁽¹⁾	Assets
Wise Holding Corporation								Salt Lake City, UT
Term Loan	(3)	Unsecured	L+10.00%	1.00%	11.00%		12/31/2021	Beverage, Food, & Tobacco	$1,250,000	$ 1,232,489	$ 250,000	0.73	%
WCI Holdings LLC Class A Preferred Units	(4)	Equity							56 units	55,550	58,579	0.03	%
WCI Holdings LLC Class B Common Units	(4)	Equity							3,044 units	3,044	3,210	0.00	%
Total										1,291,083	1,311,789	0.76	%
Zemax, LLC								Redmond, WA
Term Loan (SBIC)	(2)(3)	Second Lien	L+10.00%	1.00%	11.00%		4/23/2020	Software	$3,962,500	3,908,696	3,941,705	2.31	%
Zemax Software Holdings, LLC Preferred Units (SBIC)	(2)(4)	Equity							24,500 units	5,000	5,406	0.00	%
Zemax Software Holdings, LLC Common Units (SBIC)	(2)(4)	Equity							5,000 shares	245,000	264,879	0.16	%
Total										4,158,696	4,211,990	2.47	%
Total Non-controlled, non-affiliated investments										$ 362,217,251	$ 365,625,891	214	%
Net Investments										$ 362,217,251	$ 365,625,891	185.52	%
LIABILITIES IN EXCESS OF OTHER ASSETS											(194,744,106)	(85.52)	%
NET ASSETS											$ 170,881,785	100.00	%

(1)

See Note 1 of the Notes to Consolidated Financial Statements for a discussion of the methodologies used to value securities in the portfolio.

(2)

The Company’s obligations to the lenders of the Credit Facility are secured by a first priority security interest in all non-controlled nonaffiliated investments and cash and cash equivalents, but exclude $3,457,351 of cash and cash equivalents and $100,252,693 of investments (at par) that are held by Stellus Capital SBIC LP. See Note 1 of the Notes to the Consolidated Financial Statements for discussion.

(3)

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

(4)

Security is non-income producing.

(5)

(6)

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

(7)

Investment has been on non-accrual since December 1, 2016.

(8)

Investment is in payment default.

(9)

Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $875,000, with an interest rate of LIBOR plus 9.00% and a maturity of October 22, 2019. This investment is accruing an unused commitment fee of 0.50% per annum.

(10)

Excluded from the investment is an undrawn commitment in an amount not to exceed $1,000,000, with an interest rate of LIBOR plus 8.00% and a maturity of September 30, 2018. This investment is accruing an unused commitment fee of 0.50% per annum.

(11)

Variable rate loans bear interest at a rate that may be determined by reference to either LIBOR (which can include one-, two-, three- or six month LIBOR) or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate), at the borrower’s option, which rates reset periodically based on the terms of the loan agreement.

Stellus Capital Investment Corporation

Consolidated Schedule of Investments — (continued)

December 31, 2016

(12)

These loans have LIBOR floors which are lower than the applicable LIBOR rates; therefore, the floors are not in effect.

(13)

These loans are last-out term loans with contractual rates higher than the applicable LIBOR rates; therefore, the floors are not in effect.

(14)

In the fourth quarter of 2016 Binder, emerged from Chapter 11 Bankruptcy in the U.S. Bankruptcy Court, Southern District of New York. The investment’s cost has been adjusted to reflect the court-approved unsecured claim distribution proceeds that have been awarded to the Company. As of this time we do not expect to receive any additional repayment other than what the court has awarded.

(15)

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

Abbreviation Legend

PIK — Payment-In-Kind
L — LIBOR

Euro — Euro Dollar

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017

(Unaudited)

NOTE 1 — NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Stellus Capital Investment Corporation (“we”, “us”, “our” and the “Company”) was formed as a Maryland corporation on May 18, 2012 (“Inception”) and is an externally managed, closed-end, non-diversified investment management company. The Company is applying the guidance of Accounting Standards Codification (“ASC”) Topic 946, Financial Services Investment Companies. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”) and treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), for U.S. federal income tax purposes. The Company’s investment activities are managed by our investment adviser, Stellus Capital Management, LLC (“Stellus Capital” or the “Advisor”).

The Company has issued a total of 15,854,413 shares and raised $234,399,463 in gross proceeds since inception, incurring $7,540,725 in offering expenses and sales load fees for net proceeds from offerings of $226,858,738. The Company’s shares are currently listed on the New York Stock Exchange under the symbol “SCM”. See Note 4 for further details.

The Company has established the following wholly owned subsidiaries: SCIC — Consolidated Blocker 1, Inc., SCIC — SKP Blocker 1, Inc., SCIC — APE Blocker 1, Inc., SCIC — CC Blocker 1, Inc., SCIC — ERC Blocker 1, Inc., SCIC — Hollander Blocker 1, Inc., and SCIC — HUF Blocker 1, Inc., which are structured as Delaware entities, to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass-through entities) (collectively, the “Taxable Subsidiaries”). The Taxable Subsidiaries are consolidated for U.S. generally accepted accounting principles (“U.S. GAAP”) reporting purposes, and the portfolio investments held by them are included in the consolidated financial statements.

On June 14, 2013, we formed Stellus Capital SBIC, LP (the “SBIC subsidiary”), a Delaware limited partnership, and its general partner, Stellus Capital SBIC GP, LLC, a Delaware limited liability company, as wholly owned subsidiaries of the Company. On June 20, 2014, the SBIC subsidiary received a license from the U.S. Small Business Administration (“SBA”) to operate as a small business investment company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958. The SBIC subsidiary and its general partner are consolidated for U.S. GAAP reporting purposes, and the portfolio investments held by it are included in the consolidated financial statements.

The SBIC license allows the SBIC subsidiary to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The SBA, as a creditor, will have a superior claim to the SBIC’s assets over the Company’s stockholders in the event the Company liquidates the SBIC subsidiary or the SBA exercises its remedies under the SBA-guaranteed debentures issued by the SBIC subsidiary upon an event of default. See footnote (2) of the Consolidated Schedule of Investments. SBA regulations currently limit the amount that an SBIC may borrow to a maximum of $150 million when it has at least $75 million in regulatory capital, as such term is defined by the SBA, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing. As of September 30, 2017 and December 31, 2016, the SBIC subsidiary had $58.5 and $38.0 million of regulatory capital, respectively, as such term is defined by the SBA, and has received commitments from the SBA of $65.0 million. As of both September 30, 2017 and December 31, 2016, the SBIC subsidiary had $65.0 million of SBA-guaranteed debentures (the “SBA Debentures”) outstanding.

STELLUS CAPITAL INVESTMENT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017

(Unaudited)

The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through debt and related equity investments in middle-market companies. The Company seeks to achieve its investment objective by originating and investing primarily in private U.S. middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien, second lien, unitranche and mezzanine debt financing, with corresponding equity co-investments. The Company sources investments primarily through the extensive network of relationships that the principals of Stellus Capital have developed with financial sponsor firms, financial institutions, middle-market companies, management teams and other professional intermediaries.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, certain disclosures accompanying the annual financial statements prepared in accordance with U.S. GAAP are omitted. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of the financial statements for the interim periods included herein. The results of operations for the three and nine months ended September 30, 2017 and September 30, 2016 are not necessarily indicative of the operating results to be expected for the full year. Also, the unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2016. Certain reclassifications have been made to certain prior period balances to conform with current presentation. In accordance with Regulation S-X under the Securities Act of 1933, as amended, and the Exchange Act, the Company does not consolidate portfolio company investments. The accounting records of the Company are maintained in U.S. dollars.

Portfolio Investment Classification

The Company classifies its portfolio investments in accordance with the requirements of the 1940 Act as follows: (a) “Control Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation, (b) “Affiliate Investments” are defined as investments i