UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



FORM 10-K



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



For the
fiscal year ended December 31, 2019



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



Flat Rock
Capital Corp.

(Exact Name
of Registrant as Specified in Its Charter)



|Maryland                                                        |  | 82-0894786                           
|--------------------------------------------------------------- |  | -------------------------------------
|(State or Other Jurisdiction of
 Incorporation or Organization) |  | (I.R.S. Employer
 Identification No.)



|1350 6th Avenue, 18th Floor, New York, NY |  | 10019     
|----------------------------------------- |  | ----------
|(Address of Principal Executive Offices)  |  | (Zip Code)



(212)
596-3413

(Registrant’s
telephone number, including area code)



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

None



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

Common
Stock, par value $0.001 per share



Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No ☒



Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No ☒



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 past 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 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 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 ☒



The aggregate market value of
the common stock held by non-affiliates of the issuer was $46,314,744 on June 30, 2019.



There were 2,869,696 issued and
outstanding shares of the issuer’s common stock, $.001 par value per share, on March 10, 2020.



Documents
Incorporated by Reference



Portions of the Registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders,
which is expected to be filed no later than April 30, 2020, are incorporated by reference in Part III. Items 10, 11, 12, 13 and
14.
















TABLE OF CONTENTS



|           |                                                                                                                  | Page
|---------- | ---------------------------------------------------------------------------------------------------------------- | ----
|           | PART I                                                                                                           |     
|Item 1.    | Business                                                                                                         | 1   
|Item 1A.   | Risk Factors                                                                                                     | 18  
|Item 1B.   | Unresolved Staff Comments                                                                                        | 38  
|Item 2.    | Properties                                                                                                       | 38  
|Item 3.    | Legal Proceedings                                                                                                | 38  
|Item 4.    | Mine Safety Disclosures                                                                                          | 38  
|           |                                                                                                                  |     
|           | PART II                                                                                                          |     
|Item 5.    | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Securities | 39  
|Item 6.    | Selected Financial Data                                                                                          | 42  
|Item 7.    | Management’s Discussion and Analysis of Financial Condition and Results of Operations                            | 42  
|Item 7A.   | Quantitative and Qualitative Disclosures About Market Risk                                                       | 55  
|Item 8.    | Financial Statements and Supplementary Data                                                                      | F-1 
|Item 9.    | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                             | 56  
|Item 9A.   | Controls and Procedures                                                                                          | 56  
|Item 9B.   | Other Information                                                                                                | 56  
|           |                                                                                                                  |     
|           | PART III                                                                                                         |     
|Item 10.   | Directors, Executive Officers and Corporate Governance                                                           | 57  
|Item 11.   | Executive Compensation                                                                                           | 57  
|Item 12.   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   | 57  
|Item 13.   | Certain Relationships and Related Transactions, and Director Independence                                        | 57  
|Item 14.   | Principal Accounting Fees and Services                                                                           | 57  
|           |                                                                                                                  |     
|           | PART IV                                                                                                          |     
|Item 15.   | Exhibits, Financial Statements, and Schedules                                                                    | 58  
|Item 16.   | Form 10-K Summary                                                                                                | 59  
|SIGNATURES | 60                                                                                                              





i







PART I



Item 1. Business



Overview



We are a specialty finance company.
We operate as an externally managed, non-diversified, closed-end management investment company that has elected to be regulated
as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”).
In addition, we have elected for U.S. federal income tax purposes to be treated as a regulated investment company (“RIC”),
under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our tax year ended December 31, 2017. As a BDC and a RIC, we are required to comply with certain regulatory requirements.



We primarily make debt
investments in senior secured loans of U.S. middle-market companies (“Senior Loans”). We define middle-market
companies as companies having annual earnings, before interest, taxes, depreciation and amortization (“EBITDA”)
of $5 million to $75 million, although we may opportunistically make investments in larger or smaller companies. We expect
that our investments will typically range in size from $10 million to $25 million, although investment amounts may be smaller
or larger than this range. In particular, we may make smaller investments in the early stages of our development as we raise
capital.



We raise capital through a private
offering of our shares of common stock in order to acquire a portfolio composed primarily of Senior Loans of U.S. middle-market
companies, consistent with our investment objective and our investment strategy. Flat Rock Global, LLC, a Delaware limited liability
company (our “Adviser” or “Flat Rock Global”), serves as our investment adviser pursuant to an investment
advisory agreement (the “Advisory Agreement”). Under the Advisory Agreement, our Adviser provides significant credit
analysis, structuring capability and transactional expertise for us.



Our investment objective is the
preservation of capital while generating current income from our debt investments and seeking to maximize our portfolio’s
total return. We intend to achieve this objective by investing in a portfolio composed primarily of Senior Loans of U.S. middle-market
companies. The companies in which we invest will typically be highly leveraged, and, in most cases, our investments in such companies
will not be rated by any rating agency. If such investments were rated, we believe that they would likely receive a below-investment
grade rating, which is often referred to as “high-yield” or “junk.” While our primary investment focus
is to make loans to, and selected equity investments in, U.S. middle-market companies, we may also make opportunistic investments
in larger or smaller companies or in vehicles that provide exposure to Senior Loans. Additionally, we may from time to time hold
or invest in equity securities and other debt or equity securities generally arising from a restructuring of Senior Loan positions
previously held by us. Also, although we do not expect that it will be a significant portion of our income, our investments may
also include non-cash income features, including payment in kind interest or dividends (“PIK”) or original issue discount
(“OID”). We can offer no assurances that we will achieve our investment objective.



We intend to achieve our investment
objective by:



| | ● | accessing the established loan origination channels developed by our management team;
| | - | -------------------------------------------------------------------------------------



| | ● | selecting investments within our core middle-market focus;
| | - | ----------------------------------------------------------



| | ● | partnering with experienced private equity firms, or sponsors, in many cases with whom our management team has invested alongside
in the past;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



| | ● | implementing disciplined underwriting standards; and
| | - | ----------------------------------------------------



| | ● | drawing upon the aggregate experience and resources of our management team.
| | - | ---------------------------------------------------------------------------



Through our special purpose wholly-owned
subsidiary, FRC Funding I, LLC (“FRC Funding”), we have access to up to $35 million in borrowings pursuant to a revolving
line of credit with certain financial institutions as lenders. See “—Financing Arrangements.”



Because we have elected to be
regulated as a BDC and we intend to maintain our qualification as a RIC under the Code, our portfolio is subject to diversification
and other requirements. See “—Certain U.S. Federal Income Tax Considerations.”



Our Portfolio



As of December 31, 2019, we had
20 debt and private fund investments in 18 portfolio companies with an aggregate fair value of approximately $82.5 million.



As of March 10, 2020, our investment
portfolio principal (excluding our investment in U.S. Treasury Bills) totaled approximately $84.0 million and consisted of approximately
$77.1 million, or 91.7%, in first lien senior secured debt and collateralized loan obligations, and $6.9 million, or 8.3%, in
the equity of a joint venture that invests in first lien senior secured loans.





1







The following is our investment
portfolio as of March 10, 2020:





|Portfolio Company                            |  | Industry                                     |  | Security Type                  |  | Principal |            |  | % of Total Assets | 
|-------------------------------------------- |  | -------------------------------------------- |  | ------------------------------ |  | --------- | ---------- |  | ----------------- | 
|Diversified Risk Holdings, LLC               |  | Insurance Services                           |  | First lien senior secured debt |  | $         | 14,850,000 |  |                   | 
|Potpourri Group, Inc.                        |  | Direct Selling                               |  | First lien senior secured debt |  |           | 9,875,000  |  |                   | 
|BCP Great Lakes Fund LP                      |  | Investment Vehicle                           |  | Senior Loan Fund               |  |           | 5,902,890  |  |                   | 
|ThreeBridge Solutions Term Loan              |  | IT Implementation                            |  | First lien senior secured debt |  |           | 5,164,392  |  |                   | 
|ALM Media, Inc.                              |  | Media: Advertising, Printing, and Publishing |  | First lien senior secured debt |  |           | 5,000,000  |  |                   | 
|Trident Technologies, LLC                    |  | IT Services                                  |  | First lien senior secured debt |  |           | 5,000,000  |  |                   | 
|Spencer Gifts LLC                            |  | Retail                                       |  | First lien senior secured debt |  |           | 4,900,219  |  |                   | 
|Mills Fleet Farms                            |  | Consumer Goods                               |  | First lien senior secured debt |  |           | 4,970,491  |  |                   | 
|Churchill Middle Market CLO IV Ltd.          |  | Investment Vehicle                           |  | Collateralized Loan Obligation |  |           | 4,000,000  |  |                   | 
|AIS HoldCo, LLC                              |  | Insurance Services                           |  | First lien senior secured debt |  |           | 3,875,000  |  |                   | 
|Coastal Construction Products                |  | Construction & Building                      |  | First lien senior secured debt |  |           | 3,805,021  |  |                   | 
|Specialist Resources Global Inc.             |  | Healthcare Services                          |  | First lien senior secured debt |  |           | 3,325,000  |  |                   | 
|World Insurance Associates, LLC              |  | Banking, Finance, Insurance & Real Estate    |  | First lien senior secured debt |  |           | 3,182,458  |  |                   | 
|Ceva Logistics Finance B.V.                  |  | Transportation: Cargo                        |  | First lien senior secured debt |  |           | 2,985,000  |  |                   | 
|Isagenix International LLC                   |  | Direct Selling                               |  | First lien senior secured debt |  |           | 2,773,173  |  |                   | 
|Broder Bros Co.                              |  | Wholesale                                    |  | First lien senior secured debt |  |           | 1,932,883  |  |                   | 
|North Pole US LLC                            |  | Aerospace & Defense                          |  | First lien senior secured debt |  |           | 1,925,000  |  |                   | 
|World Insurance Associates, LLC Delayed Draw |  | Banking, Finance, Insurance & Real Estate    |  | First lien senior secured debt |  |           | 1,692,930  |  |                   | 
|Hill International, Inc.                     |  | Business Services                            |  | First lien senior secured debt |  |           | 1,462,500  |  |                   | 
|NM Z Parent Inc (Zep Inc)                    |  | Chemicals & Allied Products                  |  | First lien senior secured debt |  |           | 982,412    |  |                   | 
|ThreeBridge Solutions Delayed Draw           |  | IT Implementation                            |  | First lien senior secured debt |  |           | 277,916    |  |                   | 
|                                             |  |                                              |  |                                |  | $         | 87,882,285 |  |                   | 





As of March 10,
2020, all of the Company’s investments are in floating rate senior secured first lien loans, with the exception of its investments
in BCP Great Lakes Fund L.P. (the “JV”) and Churchill Middle Market CLO IV (“Churchill”).



The
JV represents an investment alongside BC Partners Advisors, L.P. (“BC Partners”) and BMO Harris Bank
(“BMO”) in a joint venture lending program. The JV underwrites and holds a diversified portfolio of first lien, senior
secured, floating-rate loans to private equity backed middle-market companies. BMO provides the first lien term loans with senior
financing, while we and BC Partners own the equity in the JV. The Company owns the E2 tranche of Churchill, which is comprised of approximately 75 loans.





2







Our Adviser



Flat Rock Global acts as our
investment adviser. Our Adviser is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the
“Advisers Act”). Our Adviser is controlled by Robert K. Grunewald, our President and Chief Executive Officer. Our Adviser
sources and manages our portfolio through a team of investment professionals, led by Mr. Grunewald. Mr. Grunewald has over 25 years
of experience with middle market finance, BDCs and asset management firms and previously served as the President and Chief Investment
Officer of Business Development Corp. of America (“BDCA”). During his tenure at BDCA, Mr. Grunewald grew the company
from approximately $2.5 million of assets under management to approximately $2.5 billion. Mr. Grunewald also founded AR Capital
BDC Income Fund, the first open-end mutual fund dedicated to investing in the BDC sector. Prior to BDCA, Mr. Grunewald worked at
American Capital Strategies, or ACAS, a publicly-traded BDC and global asset manager. As head of the Financial Services Investment
Practice at ACAS, Mr. Grunewald and his team focused on investment activity in the specialty finance, insurance, and asset management
sectors.



Western Asset Management Company,
a globally integrated fixed-income manager with approximately $460.1 billion in assets under management as of December 31, 2019,
has a 20% ownership interest in Flat Rock Global. Western Asset Management Company is an independent affiliate of Legg Mason.



Our Adviser has its headquarters
at 1350 6th Avenue, 18th Floor, New York, NY 10019.



Advisory Agreement



On May 16, 2017, we entered into
the Advisory Agreement with Flat Rock Global under which our Adviser:



| | ● | determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing
such changes;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| | ● | identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective
portfolio companies);
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | determines the assets we originate, purchase, retain or sell;
| | - | -------------------------------------------------------------



| | ● | performs due diligence on our prospective portfolio companies;
| | - | --------------------------------------------------------------



| | ● | executes, monitors and services the investments we make; and
| | - | ------------------------------------------------------------



| | ● | provides us such other investment advice, research and related services as we may, from time to time, require.
| | - | --------------------------------------------------------------------------------------------------------------



Our Adviser’s services
under the Advisory Agreement are not exclusive, and it is free to furnish similar or other services to others so long as its services
to us are not impaired.



Under the terms of the Advisory
Agreement, we pay our Adviser a base management fee (the “Management Fee”) and may also pay to it incentive fees (each,
an “Incentive Fee”).



The Management Fee is calculated
at an annual rate of 1.375% of our average gross assets as of the end of the two most recently completed quarters and is payable
quarterly in arrears. The Management Fee for any partial month or quarter is appropriately pro-rated.



The Incentive Fee consists of
two parts: (i) a subordinated incentive fee on income and (ii) an incentive fee on capital gains. Each part of the Incentive Fee
is outlined below.





3







The first part, which we refer
to as the “subordinated incentive fee on income,” is calculated and payable quarterly in arrears based on 15% of our
“pre-incentive fee net investment income” for the immediately preceding quarter. The payment of the subordinated incentive
fee on income is subject to payment of a preferred return to our investors each quarter, expressed as a quarterly rate of return
on “adjusted capital” at the beginning of the most recently completed calendar quarter, of 1.5% (6% annualized) (“Preferred
Return”), subject to a “catch up” feature. The calculation of the subordinated incentive fee on income for each
quarter is as follows:



| | ● | No incentive fee is payable to our Adviser in any calendar quarter in which our pre-incentive fee net investment income does
not exceed the Preferred Return;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | 100% of our pre-incentive fee net investment income, if any, that exceeds the Preferred Return but is less than or equal to
1.764% in any calendar quarter (7.056% annualized) is payable to our Adviser. This portion of the subordinated incentive fee on
income is referred to as the “catch up” and is intended to provide our Adviser with an incentive fee of 15% on all
of our pre-incentive fee net investment income when our pre-incentive fee net investment income reaches 1.764% (7.056% annualized)
in any calendar quarter; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | 15% of the amount of our pre-incentive fee net investment income, if any, that exceeds 1.764% in any calendar quarter (7.056%
annualized) is payable to our Adviser.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



The subordinated incentive fee
on income is subject to a total return requirement, which provides that no incentive fee in respect of our pre- incentive fee net
investment income is payable except to the extent that 15% of the cumulative net increase in net assets resulting from operations
since commencement of operations on June 21, 2017, exceeds the cumulative incentive fees accrued and/or paid for the prior twelve
quarters. In other words, any subordinated incentive fee on income that is payable in a calendar quarter is limited to the lesser
of (i) 15% of the amount by which our pre-incentive fee net investment income for such calendar quarter exceeds the 1.764% hurdle,
subject to the “catch-up” provision and (ii) (x) 15% of the cumulative net increase in net assets resulting from operations
since commencement of operations on June 21, 2017 minus (y) the cumulative incentive fees accrued and/or paid for the prior twelve
quarters.



The second part of the incentive
fee, referred to as the “incentive fee on capital gains,” provides for an incentive fee on capital gains earned on
liquidated investments from our portfolio during operations prior to our liquidation and is determined and payable in arrears as
of the end of each calendar year (or upon termination of the Advisory Agreement). This fee equals 15% of our realized capital gains
on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses
and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive
fees.



Unless earlier
terminated, the Advisory Agreement will remain in effect for a period of two years from its effective date and will remain in effect
from year to year thereafter if approved annually by (i) the vote of the Board and (ii) the vote of a majority of our Independent
Directors. The Advisory Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other.
The renewal of the Advisory Agreement was last approved by our board of directors (the “Board”), including all of the
directors who are not “interested persons” of the Company at their in-person meeting held on February 25, 2020.



Administration Agreement



We have entered into an
administration agreement (the “Administration Agreement”) with Flat Rock Global to serve as our Administrator.
Pursuant to the Administration Agreement, Flat Rock Global provides us with services such as accounting, financial reporting,
legal and compliance support and investor relations support, necessary for us to operate or has engaged a third-party firm to
perform some or all of these functions. We do not pay Flat Rock Global any fees pursuant to the Administration Agreement. We
reimburse Flat Rock Global for administrative expenses it incurs as a result of providing these services.



Unless earlier terminated, the
Administration Agreement will remain in effect for a period of two years from its effective date and will remain in effect from
year to year thereafter if approved annually by (i) the vote of the Board and (ii) the vote of a majority of our Independent Directors.
The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other.



Market Opportunity



We believe that the banking and
financial services crisis, which began in the summer of 2007, created an opportunity for specialty financial services companies
with experience in negotiating, structuring and managing Senior Loan investments to capitalize on compelling opportunities to generate
attractive yields for investors seeking current income. We believe the following factors create favorable investment opportunities
to generate attractive risk-adjusted returns for our stockholders. However, there can be no assurances that we will be able to
successfully implement our business strategy and, as a result, meet our investment objective.



The Senior Loan market provides
investors seeking current income with an attractive risk-adjusted return profile. The interest on a Senior Loan is determined
based on a spread over a market index rate that resets periodically. Further, the terms of Senior Loans generally provide for a
“floor,” or minimum market index rate, thus providing protection during a period of dramatically falling interest rates.
We believe these characteristics offer us a form of interest rate protection in periods of rising and falling interest rates.





4







Senior Loans are typically
collateralized by a company’s assets and structured with a lien on collateral. The structure of these loans provides
for greater security and potential recovery in the event of default compared to subordinated fixed-income products, which have
a lesser claim on the collateral or may be unsecured. These structural characteristics, combined with reduced volatility, attractive
credit fundamentals and favorable liquidity, provide investors with an opportunity to generate attractive returns on an absolute
and risk-adjusted basis.



Regulatory reform has made
Senior Loans less attractive to banks. Following the financial services crisis that began in the summer of 2007, banks
became subject to increased regulatory restrictions, which resulted in more stringent requirements concerning loan underwriting
standards, documentation, and risk retention standards. As a result, we believe the cost to comply with these guidelines has increased
expenses in connection with holding Senior Loans, which has decreased the attractiveness of the terms of these loans to traditional
providers of capital such as banks. These additional costs have led to a decreased ability and interest among traditional lenders
in holding Senior Loans on their balance sheets. We believe that alternative providers of capital to the Senior Loan market, such
as us, stand to benefit from this changed financial landscape.



Strong demand for debt capital.
We believe borrowers will continue to require capital to refinance existing debt, support growth and finance acquisitions. The
financial difficulties and widespread consolidation in the U.S. financial services industry has reduced the capacity of lenders
able to meet this demand. One primary use of Senior Loans is to finance acquisitions by private equity firms. We expect that private
equity firms will continue to pursue acquisitions and to seek to leverage their equity investments with Senior Loans of the type
we seek to fund.



Borrowers’ conservative
capital structures. Following the recession caused by the financial services crisis, which the U.S. Bureau of Labor Statistics
defines as occurring between December 2007 and June 2009, lenders have required borrowers to decrease their leverage ratios, specifically
to protect lenders during periods of economic downturns. We believe that these requirements have resulted in an improved financial
condition of the borrowers and thus strengthened their ability to meet the terms of their debt obligations. We further believe
that these developments have increased the attractiveness of Senior Loans, as well as all debt instruments, to the providers of
capital such as us.



Competitive Advantages



We believe we have competitive
advantages over other operators in the Senior Loan market, including other BDCs. We expect that these advantages will enable us
to deliver attractive risk-adjusted returns over time. Our advantages include the experience and track record of our Adviser’s
senior investment team in investing in leveraged loans, our extensive credit underwriting experience and the portfolio management
and BDC operations expertise of our Adviser. The principals of our Adviser, Robert K. Grunewald and Richard A. Petrocelli, also
have extensive relationships with private equity sponsors, loan syndication and trading desks, lending groups, management teams,
investment bankers, and other industry sources that we believe provide us with attractive investment opportunities. We expect to
benefit from our Adviser’s ability to identify attractive investment opportunities unavailable to other providers of capital,
conduct diligence on and value prospective investments, negotiate investment legal documentation and proactively manage a diversified
portfolio of investments. As a result of complying with the terms of the Small Business Credit Availability Act (the “SBCAA”),
we have the ability to reduce our asset coverage ratio from 200% to 150%, which we believe provides us with greater resources to
invest in our portfolio companies and to generate attractive returns to our stockholders. Our senior management and investment
personnel of our Adviser have extensive experience in managing and operating a BDC, which distinguishes us from other BDC issuers
whose advisers may not be as experienced in complying with the complex tax, regulatory and investment requirements applicable to
BDCs.



Financing Arrangements



On October 12, 2018, we,
through FRC Funding (“FRC Funding” and together with the Company, the “Borrowers”) entered into a
Loan and Security Agreement (the “Loan Agreement”) with certain financial institutions as lenders
(“Lenders”), State Bank and Trust Company as the administrative agent (“State Bank”) and Alostar
Capital Finance (“Alostar”), as Lead Arranger and Bookrunner, pursuant to which the Lenders agreed to provide us
with a revolving line of credit. Per the second amendment of the Loan Agreement, Cadence Bank, N.A. is the successor by
merger to State Bank and Trust Company. On December 10, 2018, the Loan Agreement was amended to add Hitachi Capital America
Corp., (“Hitachi”) to the definition of “Lenders” and to amend the definition of “Revolver Commitments” to
increase the aggregate amount available to the Borrowers under the Revolver Commitments to $30 million, beginning with the
effective date of the Amendment. On May 31, 2019, the Loan Agreement was amended to revise the definitions for “Asset
Coverage Ratio” and “Service Termination Event,” and increase the aggregate amount available to Borrowers
under the Revolver Commitments to $35 million, beginning with the effective date of the amendment. The termination date for the Loan Agreement is October 12, 2022.



As amended, the Loan Agreement
provides for $35 million in Revolver Commitments (as defined in the Loan Agreement) to be available to the Company to draw down
and repay for three years, subject to borrowing base eligibility. The Loan Agreement matures at the earliest of (a) the date that
is four (4) years from closing, (b) the date on which FRC Funding terminates the Revolver Commitments pursuant to the Loan Agreement;
or (c) the date on which the Revolver Commitments are terminated pursuant to certain events of default under the Loan Agreement.
The Scheduled Revolving Period End Date (as defined in the Loan Agreement) is three years from closing.



The Loan Agreement accrues interest
at the Daily LIBOR Rate (as defined in the Loan Agreement), plus a 2.88% margin, and principal is repayable in full at maturity.
Interest is generally required to be paid monthly in arrears. The Loan Agreement requires the payment of an unused line fee of
between 0.50% and 1.0%, commencing on the date that is two months from closing, based on the amount by which the Revolver Commitments
exceed the average daily balance of the Revolver Loans (as defined in the Loan Agreement) during any month. Such fee is payable
monthly in arrears. The Loan Agreement has an advance rate against FRC Funding’s Eligible Portfolio Investment (as defined
in the Loan Agreement). The advance rate, as to any Eligible Portfolio Investment, is 75.0% when the Company’s asset coverage
ratio is equal or greater than 200.0% or 70.0% when the Company’s asset coverage ratio is less than 200.0%, subject to certain
eligibility requirements (as defined in the Loan Agreement).





5







Pursuant to the terms of the
Loan Agreement, the Borrowers granted to State Bank for the benefit of State Bank and Hitachi, the Lenders, Alostar and its affiliates,
a security interest and a lien in substantially all of FRC Funding’s assets. The Loan Agreement contains certain
affirmative and negative covenants, including a minimum company asset coverage ratio, a minimum fixed charge ratio, and a
minimum company tangible net worth. Under the Loan Agreement, the Borrowers were required to make certain customary
representations and warranties, and are required to comply with various covenants, reporting requirements and other
requirements that are customary for similar credit facilities. The obligations under the Loan Agreement may be accelerated
upon the occurrence of an event of default under the Loan Agreement or in the event of a change of control of the Company or
FRC Funding.



Investment Criteria for Evaluating
Investment Opportunities



We have established investment
criteria to be followed by our Adviser in evaluating the appropriateness of an investment opportunity in a Senior Loan. Specifically,
we intend that a substantial portion of our Senior Loans investments will have the following attributes:



| | ● | Annual EBITDA of $5 million to $75 million;
| | - | -------------------------------------------



| | ● | Sustainable leading positions in their respective markets;
| | - | ----------------------------------------------------------



| | ● | Scalable revenues and operating cash flow;
| | - | ------------------------------------------



| | ● | Experienced management teams with successful track records;
| | - | -----------------------------------------------------------



| | ● | Stable, predicable cash flows with low technology and market risks;
| | - | -------------------------------------------------------------------



| | ● | A substantial equity cushion in the form of capital ranking junior to our investment;
| | - | -------------------------------------------------------------------------------------



| | ● | Low capital expenditures requirements;
| | - | --------------------------------------



| | ● | A North American base of operations;
| | - | ------------------------------------



| | ● | Strong customer relationships;
| | - | ------------------------------



| | ● | Products, services or distribution channels having distinctive competitive advantages;
| | - | --------------------------------------------------------------------------------------



| | ● | Defensible niche strategy or other barriers to entry; and
| | - | ---------------------------------------------------------



| | ● | Demonstrated growth strategies.
| | - | -------------------------------



While we believe that the criteria
listed above are important in identifying and investing in prospective portfolio companies, not all of these criteria will be met
by each prospective portfolio company.



Investment Committee



Our Adviser has established an
investment committee, or the Investment Committee, that consists of Robert K. Grunewald and Richard A. Petrocelli. The role of
the Investment Committee is to evaluate and approve our investments, subject to oversight by the Board, pursuant to our investment
strategy, to monitor our investment portfolio and to monitor our compliance with requirements related to our qualification as a
BDC and a RIC. The Investment Committee meets on a regular basis as frequently as it believes is required to maintain prudent oversight
of our investment activities. The Investment Committee sets and monitors operating policies and guidelines consistent with criteria
established by the Board. The Board may change these policies or guidelines at any time without approval from our stockholders.



Competition



Our primary competitors in providing
financing to middle-market companies include public and private funds, other BDCs, commercial and investment banks, commercial
financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds. Many of our
competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For
example, we believe some competitors may have access to funding sources that are not available to us. In addition, some of our
competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of
investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions
that the 1940 Act imposes on us as a business development company or to the distribution and other requirements we must satisfy
to maintain our RIC status.



We expect to use the expertise
of the investment professionals of our Adviser to assess investment risks and determine appropriate pricing for our investments
in portfolio companies. In addition, we expect that the relationships of the senior management of our Adviser will enable us to
learn about, and compete effectively for, financing opportunities with attractive middle-market companies in the industries in
which we seek to invest.





6







Expenses



Our primary operating expenses
are the payment of advisory fees and other expenses under the Advisory Agreement. The investment advisory fees compensate our Adviser
for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.



We bear all other expenses of
our operations and transactions, including (without limitation) fees and expenses relating to:



| | ● | the cost of calculating our NAV, including the cost of any third-party valuation services;
| | - | ------------------------------------------------------------------------------------------



| | ● | the cost of effecting sales and repurchases of our shares and other securities;
| | - | -------------------------------------------------------------------------------



| | ● | management and incentive fees payable to Flat Rock Global pursuant to the Advisory Agreement;
| | - | ---------------------------------------------------------------------------------------------



| | ● | custodial fees;
| | - | ---------------



| | ● | federal, state and local taxes;
| | - | -------------------------------



| | ● | interest payable on debt, if any, incurred to finance our investments;
| | - | ----------------------------------------------------------------------



| | ● | independent directors’ fees and expenses;
| | - | -----------------------------------------



| | ● | brokerage commissions for our investments;
| | - | ------------------------------------------



| | ● | costs of proxy statements, stockholders’ reports and notices;
| | - | -------------------------------------------------------------



| | ● | fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums;
| | - | ------------------------------------------------------------------------------------------------------------



| | ● | costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities
laws;
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | ● | direct costs such as printing, mailing, long distance telephone and staff costs; and
| | - | ------------------------------------------------------------------------------------



| | ● | fees and expenses associated with independent accountants, independent and internal audit, and outside legal costs.
| | - | -------------------------------------------------------------------------------------------------------------------



Our Adviser is responsible for
payment of any and all organization and offering expenses incurred on our behalf in connection with our private offering of shares.
Specifically, our Adviser will not seek or be entitled to reimbursement from us for any of the following offering expenses:



| | ● | transfer agent fees;
| | - | --------------------



| | ● | fees and expenses associated with marketing efforts (including attendance at investment conferences and similar events);
| | - | ------------------------------------------------------------------------------------------------------------------------



| | ● | federal and state registration fees; and
| | - | ----------------------------------------



| | ● | all other offering expenses incurred by Flat Rock Global in performing its obligations.
| | - | ---------------------------------------------------------------------------------------



From time to time, our Adviser
and Administrator may pay amounts owed by us to third-party providers of goods or services. We will subsequently reimburse our
Adviser and Administrator for such amounts paid on our behalf. In addition, we reimburse Flat Rock Global for the allocable portion
of the compensation paid by Flat Rock Global to our chief compliance officer and chief financial officer and their respective staffs
(based on the percentage of time such individuals devote, on an estimated basis, to our business and affairs). All of these expenses
will ultimately be borne by our stockholders.



Employees



We do not have any direct employees,
and our day-to-day investment operations are managed by Flat Rock Global. We have a chief executive officer, chief financial officer
and chief compliance officer and, to the extent necessary, the Board may elect to hire additional personnel going forward. Our
officers are employees of Flat Rock Global, and a portion of the compensation paid to our chief financial officer and chief compliance
officer will be paid by us pursuant to the Administration Agreement. All of our executive officers are also officers of Flat Rock
Global.





7







Regulation as a Business
Development Company



We have elected to be regulated
as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their
affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters.
In addition, a BDC must be organized in the United States for the purpose of investing in or lending to primarily private companies
and making significant managerial assistance available to them. A BDC may use capital provided by public stockholders and from
other sources to make long-term, private investments in businesses.



As with other companies regulated
by the 1940 Act, a BDC must adhere to certain substantive regulatory requirements. A majority of our directors must be persons
who are not “interested persons,” as that term is defined in the 1940 Act. Additionally, we are required to provide
and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore,
as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from
willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s
office. As a BDC, we are also required to meet a coverage ratio of the value of total assets to total senior securities, which
include all of our borrowings and any preferred stock we may issue in the future, of at least 150%. This means that for every $100
of net assets we have, we are able to borrow or issue senior securities in the amount of $200.



We may not change the nature
of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of a majority of the outstanding
voting securities, as required by the 1940 Act. A majority of the outstanding voting securities of a company is defined under the
1940 Act as the lesser of: (a) 67% or more of such company’s voting securities present at a meeting if more than 50% of the
outstanding voting securities of such company are present or represented by proxy, or (b) more than 50% of the outstanding voting
securities of such company. We do not anticipate any substantial change in the nature of our business.



We may invest up to 100% of our
assets in securities acquired directly from, or loans originated directly to, issuers in privately-negotiated transactions. We
do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these
limits, except for registered money market funds, the Company generally cannot acquire more than 3% of the voting stock of any
investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest
more than 10% of the value of our total assets in the securities of investment companies in the aggregate. The portion of our portfolio
invested in securities issued by investment companies ordinarily will subject our stockholders to additional expenses. Our investment
portfolio will be subject to diversification requirements by virtue of our anticipated status as a RIC for U.S. tax purposes; the
related requirements are set forth below.



We are generally not able to
issue and sell our common stock at a price below net asset value per share. We may, however, issue and sell our common stock, or
warrants, options or rights to acquire our common stock, at a price below the then current net asset value of our common stock
if the Board determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders
have approved our policy and practice of making such sales within the preceding 12 months. In any such case, the price at which
our securities are to be issued and sold may not be less than a price that, in the determination of the Board, closely approximates
the market value of such securities. In addition, we may generally issue new shares of our common stock at a price below net asset
value in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances.



We may also be prohibited under
the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of the members
of our Board who are not interested persons and, in some cases, prior approval by the Securities and Exchange Commission (“SEC”)
through an exemptive order (other than in certain limited situations pursuant to current regulatory guidance). We will be subject
to periodic examination by the SEC for compliance with the 1940 Act.





8







Qualifying Assets



Under the 1940 Act, a BDC may
not acquire any assets other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to as qualifying
assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets.
The principal categories of qualifying assets relevant to our business are the following:



|● | Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject
to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13
months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed
by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which:
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | is organized under the laws of, and has its principal place of business in, the United States;
| | - | ----------------------------------------------------------------------------------------------



| | ● | is not an investment company (other than a small business investment company wholly owned by the Company) or a company that
would be an investment company but for certain exclusions under the 1940 Act; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | satisfies any of the following:
| | - | -------------------------------



| | ● | does not have any class of securities that is traded on a national securities exchange;
| | - | ---------------------------------------------------------------------------------------



| | ● | has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting
and non- voting common equity of less than $250 million;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | is controlled by a business development company or a group of companies including a business development company and the business
development company has an affiliated person who is a director of the eligible portfolio company; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | is a small and solvent company having total assets of not more than $4.0 million and capital and surplus of not less than $2.0
million.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



|● | Securities of any eligible portfolio company that we control.
|- | -------------------------------------------------------------



|● | Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person
of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer,
immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance
other than conventional lending or financing arrangements.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● | Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market
for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● | Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise
of warrants or rights relating to such securities.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● | Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time
of investment.
|- | --------------------------------------------------------------------------------------------------------------------------------------------



Limitations on Leverage



BDCs generally must maintain
a 200% asset coverage ratio, meaning that the total value of our assets must be at least twice the amount of the debt (i.e., 50%
leverage). However, on March 23, 2018, President Trump signed into law the 2018 omnibus spending bill, which included the SBCAA
that modified the 1940 Act by increasing the amount of leverage that BDCs may incur by modifying the asset coverage percentage
from 200% to 150%, if certain conditions were met.



On May 30, 2018, the Board, including
a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the application
of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. Subsequent to such approval from the
Board, we filed tender offer materials with the SEC to offer to repurchase 25% of our total outstanding shares in four separate
tender offers that expired on July 26, 2018, September 6, 2018, October 12, 2018 and December 4, 2018. We repurchased 20,000 shares
of our common stock that were validly tendered and not withdrawn pursuant to such tender offers, which constituted all of the shares
that were validly tendered and not withdrawn, at a price equal to $20.03 per share for an aggregate purchase price of approximately
$400,600. As a result of the approval from our Board and the satisfaction of the requirement that we provide all shareholders with
the ability to sell their shares within twelve months of such approval, we became eligible to incur additional leverage on May
30, 2019.





9







Managerial Assistance to
Portfolio Companies



A BDC must be operated for the
purpose of making investments in the types of securities described under “—Regulation as a Public Business Development
Company—Qualifying Assets,” above. However, in order to count portfolio securities as qualifying assets for the
purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer
of the securities significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one
or more other persons acting together, the BDC will satisfy this test if one of the other persons in the group may make available
such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC,
through its directors, officers or employees, offers to provide, and, if accepted, does in fact provide, significant guidance and
counsel concerning the management, operations or business objectives and policies of a portfolio company. Flat Rock Global or an
affiliate will provide such managerial assistance on our behalf to portfolio companies that request this assistance. We may receive
fees for these services and will reimburse Flat Rock Global or an affiliate for its allocated costs in providing such assistance,
subject to the review and approval by our board of directors, including our independent directors.



Temporary Investments



Pending investment in other types
of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. Government
securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively,
as temporary investments, such that at least 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury
bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S.
government or its agencies. Our Adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase
agreement transactions, if any.



Senior Securities



We are permitted, under specified
conditions, to issue multiple classes of debt and one class of stock senior to our common stock if our asset coverage, as defined
in the 1940 Act, and as modified by the SBCAA, is at least equal to 150% immediately after each such issuance. In addition, while
any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase
of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.
We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset
coverage. For a discussion of the risks associated with leverage, See “Risk Factors — Risks Related to Business
Development Companies — Regulations governing our operation as a BDC and RIC will affect our ability to raise, and the way
in which we raise additional capital or borrow for investment purposes, which may have a negative effect on our growth.”



The 1940 Act imposes limitations
on a BDC’s issuance of preferred shares, which are considered “senior securities” and thus are subject to the
asset coverage requirement described above. In addition, (i) preferred shares must have the same voting rights as the common stockholders
(one share, one vote); and (ii) preferred stockholders must have the right, as a class, to appoint directors to the Board.



Code of Ethics



We and our Adviser have adopted
codes of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, respectively, that establish
procedures for personal investments and restrict certain transactions by our personnel. The codes of ethics generally do not permit
investments by our employees or employees of our Adviser in securities that may be purchased or held by us. Our code of ethics
has been filed as an exhibit to this annual report on Form 10-K.





10







Compliance Policies and Procedures



We and our
Adviser have adopted and implemented written policies and procedures reasonably designed to detect and prevent violation of the
federal securities laws and will be required to review these compliance policies and procedures annually for their adequacy and
the effectiveness of their implementation and designate a chief compliance officer to be responsible for administering the policies
and procedures.



Exchange Act and Sarbanes-Oxley
Act Compliance



The Sarbanes-Oxley Act of 2002
(the “Sarbanes-Oxley Act”) imposes a wide variety of regulatory requirements on certain publicly held companies and
their insiders. Assuming certain requirements are met, many of these requirements affect us. For example:



| | ● | pursuant to Rule 13a-14 of the Exchange Act, our chief executive officer and chief financial officer are required to certify
the accuracy of the financial statements contained in our periodic reports;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure
controls and procedures;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | pursuant to Rule 13a-15 of the Exchange Act, subject to certain assumptions, our management is required to prepare an annual
report regarding its assessment of our internal control over financial reporting and, depending on our accelerated filer status,
this report may be required to be audited by our independent registered public accounting firm; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, our periodic reports must disclose whether there
were material changes in our internal control over financial reporting or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Sarbanes-Oxley Act requires
us to review our current policies and procedures to determine whether we comply with the Sarbanes- Oxley Act and the regulations
promulgated thereunder. We will continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley
Act and will take actions necessary to ensure that we are in compliance therewith.



Proxy Voting Policies and
Procedures



We have delegated our proxy voting
responsibility to our Adviser. The Proxy Voting Policies and Procedures of our Adviser are set forth below. The guidelines are
reviewed periodically by our Adviser and our Independent Directors, and, accordingly, are subject to change.



An investment adviser registered
under the Advisers Act has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, our Adviser
recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its
clients. These policies and procedures for voting proxies for our Adviser’s investment advisory clients are intended to comply
with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.



Our Adviser will vote proxies
relating to our securities in the best interest of its clients’ stockholders. It will review on a case-by-case basis each
proposal submitted for a stockholder vote to determine its impact on the portfolio securities held by its clients. Although our
Adviser will generally vote against proposals that may have a negative impact on its clients’ portfolio securities, it may
vote for such a proposal if there exists compelling long-term reasons to do so.



The proxy voting decisions of
our Adviser are made by the senior officers who are responsible for monitoring each of its clients’ investments. To ensure
that its vote is not the product of a conflict of interest, it will require that: (a) anyone involved in the decision-making process
disclose to its chief compliance officer any potential conflict that he or she is aware of and any contact that he or she has had
with any interested party regarding a proxy vote; and (b) employees involved in the decision making process or vote administration
are prohibited from revealing how our Adviser intends to vote on a proposal in order to reduce any attempted influence from interested
parties.





11







Privacy Principles



We are committed to protecting
our investors’ privacy. The following privacy notice explains our privacy policy:



We will safeguard, according
to strict standards of security and confidentiality, all information we receive about our investors. The only information we collect
from an investor is the investor’s name, address, number of shares the investor holds and the investor’s social security
number. This information is used only so that we can send our investors annual reports and other information about us, and send
investors proxy statements or other information required by law.



We do not share this information
with any non-affiliated third party except as described below.



| | ● | Authorized Employees of Flat Rock Global. It is our policy that only authorized employees of Flat Rock Global who need
to know your personal information will have access to it.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Service Providers. We may disclose investors’ personal information to companies that provide services on our behalf,
such as record keeping, processing trades, and mailing information. These companies are required to protect investor information
and use it solely for the purpose for which they received it.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Courts and Government Officials. If required by law, we may disclose investors’ personal information in accordance
with a court order or at the request of government regulators. Only that information required by law, subpoena, or court order
will be disclosed.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Reporting Obligations



We are a reporting company under
the Exchange Act and are required to comply with all periodic reporting, proxy solicitation and other applicable requirements under
the Exchange Act.



As a BDC, we are required to
file quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports on Form 8-K with the SEC. Each of these periodic
reports will be made available on our Adviser’s website at www.flatrockglobal.com following the end of each fiscal quarter
and fiscal year, as applicable. You may also obtain such information by contacting us, in writing at: Flat Rock Capital Corp.,
1350 6th Avenue, 18th Floor, New York, NY 10019, or by telephone at (212) 596-3413. The SEC maintains an Internet site that contains
reports, proxy and information statements and other information filed electronically by us with the SEC which is available on the
SEC’s Internet site at http://www.sec.gov.



Certain U.S. Federal Income
Tax Considerations



The following discussion is a
general summary of the material U.S. federal income tax considerations applicable to us and to an investment in our shares. This
summary does not purport to be a complete description of the income tax considerations applicable to such an investment. For example,
we have not described tax consequences that may be relevant to certain types of holders subject to special treatment under U.S.
federal income tax laws, including stockholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies,
dealers in securities, pension plans and trusts, financial institutions, partnerships and other pass- through entities, U.S. stockholders
(as defined below) whose functional currency is not the U.S. dollar, persons who mark-to-market our shares and persons who hold
our shares as part of a “straddle,” “hedge” or “conversion” transaction. This summary assumes
that investors hold our common stock as capital assets (within the meaning of the Code). The discussion is based upon the Code,
Treasury regulations, and administrative and judicial interpretations, each as of the date hereof and all of which are subject
to change, possibly retroactively, which could affect the continuing validity of this discussion. We have not sought and will not
seek any ruling from the Internal Revenue Service (the “IRS”) regarding any matter discussed herein. Tax counsel has
not rendered any legal opinion regarding any tax consequences relating to us or our stockholders. This summary does not discuss
any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal
income tax laws that could result if we invested in tax-exempt securities or certain other investment assets.





12







For purposes of this discussion,
a “U.S. stockholder” generally is a beneficial owner of shares of our common stock who is for U.S. federal income tax
purposes:



| | ● | a citizen or individual resident of the United States;
| | - | ------------------------------------------------------



| | ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under
the laws of the United States or any political subdivision thereof;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a trust if (a) a court in the United States has primary supervision over its administration and
one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election
in effect under applicable U.S. Treasury regulations to be treated as a U.S. person for federal income tax purposes; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | an estate, the income of which is subject to U.S. federal income taxation regardless of its source.
| | - | ---------------------------------------------------------------------------------------------------



A “Non-U.S. stockholder”
generally is a beneficial owner of shares of our common stock that is not a U.S. stockholder.



If a partnership (including an
entity treated as a partnership for U.S. federal income tax purposes) holds shares of our common stock, the tax treatment of a
partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective
stockholder that is a partner in a partnership holding shares of our common stock should consult his, her or its tax advisers with
respect to the purchase, ownership and disposition of shares of our common stock.



Tax matters are complicated and
the tax consequences to an investor of an investment in our shares will depend on the facts of the investor’s particular
situation. We encourage investors to consult their own tax advisers regarding the specific consequences of such an investment,
including tax reporting requirements, the applicability of federal, state, local and foreign tax laws, including the potential
application of U.S. withholding taxes, eligibility for the benefits of any applicable tax treaty and the effect of any possible
changes in the tax laws.



Classification of the Company
as Corporation for Tax Purposes



We were incorporated under the
laws of the State of Maryland on March 20, 2017, and have been treated as a corporation under Subchapter C of the Code.



Election to be Taxed as a
RIC



As a BDC, we have elected, and
intend to qualify annually, as a RIC under Subchapter M of the Code, beginning with our initial taxable year December 31, 2017.
As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income that we distribute to our stockholders
from our earnings and profits. To qualify for and maintain our qualification as a RIC, we must, among other things, meet certain
source-of-income and asset diversification requirements (as described below). In addition, to obtain RIC tax treatment, we must
timely distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,”
which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net
long-term capital losses (the “Annual Distribution Requirement”).



Taxation as a RIC



If we:



| | ● | qualify as a RIC; and
| | - | ---------------------



| | ● | satisfy the Annual Distribution Requirement,
| | - | --------------------------------------------



then we will not be subject to
U.S. federal income tax on the portion of our investment company taxable income and net capital gain (generally defined as net
long-term capital gains in excess of short-term capital losses) we distribute (or are deemed to distribute) to stockholders. We
will be subject to U.S. federal income tax at regular corporate rates on any net income or net capital gain not distributed (or
deemed distributed) to our stockholders.



We will be subject to a nondeductible
U.S. federal excise tax of 4% on certain undistributed income unless we distribute in a timely manner an amount at least equal
to the sum of (1) 98% of our net ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one-year
period ending October 31 of that calendar year and (3) any income realized, but not distributed, in preceding years and on which
we paid no federal income tax (“Excise Tax Distribution Requirement”).



To qualify as a RIC for federal
income tax purposes, we must, among other things:



| | ● | continue to qualify to be treated as a BDC under the 1940 Act at all times during each taxable year;
| | - | ----------------------------------------------------------------------------------------------------



| | ● | derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities,
loans, gains from the sale of stock or other securities, net income from certain “qualified publicly-traded partnerships,”
or other income derived with respect to our business of investing in such stock or securities the (“90% Income Test”);
and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





13







| | ● | diversify our holdings so that at the end of each quarter of the taxable year:
| | - | ------------------------------------------------------------------------------



| | (i) | at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other
RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets
or more than 10% of the outstanding voting securities of such issuer; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or
                                                                  securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable tax
                                                                  rules, by us and that are engaged in the same or similar or related trades or businesses or in the securities of one or more
                                                                  “qualified publicly-traded partnerships,” (the “Diversification
Tests”).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To the extent that we invest
in entities treated as partnerships for U.S. federal income tax purposes (other than a “qualified publicly traded partnership”),
we generally must include the items of gross income derived by the partnerships for purposes of the 90% Income Test, and the income
that is derived from a partnership (other than a “qualified publicly traded partnership”) will be treated as qualifying
income for purposes of the 90% Income Test only to the extent that such income is attributable to items of income of the partnership
which would be qualifying income if realized by us directly. In addition, we generally must take into account our proportionate
share of the assets held by partnerships in which we are a partner (other than a “qualified publicly traded partnership”)
for purposes of the Diversification Tests.



For federal income tax purposes,
we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For
example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt
instruments with PIK interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants),
we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless
of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other
amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan
or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original
issue discount or other income required to be included in taxable income prior to receipt of cash. Further, we may elect to amortize
market discount and include such amounts in our taxable income in the current year, instead of upon disposition, as an election
not to do so would limit our ability to deduct interest expenses for tax purposes, which is subject to other limitations under
U.S. federal income tax law.



We intend to invest a portion
of our net assets in below investment grade instruments (rated lower than “Baa3” by Moody’s Investors Service
or lower than “BBB-” by Standard & Poor’s Corporation), which are often referred to as “junk”
bonds. Investments in these types of instruments may present special tax issues for us. U.S. federal income tax rules are not entirely
clear about issues such as when we may cease to accrue interest, original issue discount or market discount, when and to what extent
deductions may be taken for bad debts or worthless instruments, how payments received on obligations in default should be allocated
between principal and income and whether exchanges of debt obligations in a bankruptcy or workout context are taxable. We will
address these and other issues to the extent necessary to seek to ensure that we distribute sufficient income so that we do not
become subject to U.S. federal income or excise tax.



Because any original issue discount
or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required
to make a distribution to our stockholders to satisfy the Annual Distribution Requirement, even though we will not have received
any corresponding cash amount. As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to qualify
for and maintain RIC tax treatment under Subchapter M of the Code. We may have to sell some of our investments at times and/or
at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for
this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become
subject to corporate-level income tax.



Although we do not presently
expect to do so, we are authorized to borrow funds and to sell assets to satisfy distribution requirements. However, under the
1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior
securities are outstanding unless certain “asset coverage” tests are met. See “Regulation as a Public
Business Development Company — Senior Securities.”Moreover, our ability to dispose of assets to meet our
distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating
to our status as a RIC, including the Diversification Tests. If we dispose of assets to meet the Annual Distribution
Requirement or the Excise Tax Distribution Requirement, we may make such dispositions at times that, from an investment
standpoint, are not advantageous.





14







Failure to Qualify as a RIC



If we were
unable to qualify for treatment as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates, regardless
of whether we make any distributions to our stockholders. Distributions would not be required, and any distributions would be taxable
to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits. Subject to certain
limitations in the Code, such distributions may be eligible for the preferential maximum rate applicable to qualified dividend
income of individual stockholders to the extent of our current and accumulated earnings and profits. Subject to certain limitations
under the Code, corporate distributees may be eligible for a dividends-received deduction. Distributions in excess of our current
and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax
basis, and any remaining distributions would be treated as a capital gain.



To requalify as a RIC in a subsequent
taxable year, we would be required to satisfy the RIC qualification requirements for that year and dispose of any earnings and
profits from any year in which we failed to qualify as a RIC. Subject to a limited exception applicable to RICs that qualified
as such under the Code for at least one year prior to disqualification and that requalify as a RIC no later than the second year
following the nonqualifying year, we would be subject to tax on any unrealized net built-in gains in the assets held by us during
the period in which we failed to qualify as a RIC that are recognized within the subsequent 5 years, unless we made a special election
to pay corporate-level U.S. federal income tax on such built-in gains at the time of our requalification as a RIC.



The remainder of this discussion
assumes that we qualify as a RIC and satisfy the Annual Distribution Requirement.



Taxation of U.S. Stockholders



Distributions by us generally
are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our “investment company taxable income”
(which is, generally, our net ordinary income plus realized net short-term capital gains in excess of realized net long-term capital
losses) will be taxable as ordinary income to U.S. stockholders to the extent of our current or accumulated earnings and profits,
whether paid in cash or reinvested in additional common stock. To the extent such distributions paid by us to non-corporate stockholders
(including individuals) are attributable to dividends from U.S. corporations and certain qualified foreign corporations, such distributions
(“Qualifying Dividends”) may be eligible for a maximum tax rate of 20%, provided that we properly report such distribution
as “qualifying dividend income” in a written statement furnished to our stockholders and certain holding period and
other requirements are satisfied. In this regard, it is not anticipated that a significant portion of distributions paid by us
will be attributable to qualifying dividends; therefore, our distributions generally will not qualify for the preferential maximum
rate applicable to Qualifying Dividends. Distributions of our net capital gain (which is generally our realized net long-term capital
gains in excess of realized net short-term capital losses) properly designated by us as “capital gain dividends” will
be taxable to a U.S. stockholder as long-term capital gains that are currently generally taxable at a maximum rate of 20% in the
case of individuals, trusts or estates, regardless of the U.S. stockholder’s holding period for his, her or its common stock
and regardless of whether paid in cash or reinvested in additional common stock. Distributions in excess of our earnings and profits
first will reduce a U.S. stockholder’s adjusted tax basis in such stockholder’s common stock and, after the adjusted
basis is reduced to zero, will constitute capital gains to such U.S. stockholder.



Although we currently intend
to distribute any long-term capital gain at least annually, we may in the future decide to retain some or all of our long-term
capital gain, but designate the retained amount as a “deemed distribution.” In that case, among other consequences,
we will pay tax on the retained amount, each U.S. stockholder will be required to include his, her or its proportionate share of
the deemed distribution in income as if it had been actually distributed to the U.S. stockholder, and the U.S. stockholder will
be entitled to claim a credit equal to his, her or its allocable share of the tax paid thereon by us. The amount of the deemed
distribution net of such tax will be added to the U.S. stockholder’s tax basis for his, her or its common stock. Since we
expect to pay tax on any retained capital gain at our regular corporate tax rate, and since that rate is in excess of the maximum
rate currently payable by individuals on net capital gain, the amount of tax that individual stockholders will be treated as having
paid and for which they will receive a credit will exceed the tax they owe on the retained net capital gain. Such excess generally
may be claimed as a credit against the U.S. stockholder’s other U.S. federal income tax obligations or may be refunded to
the extent it exceeds a stockholder’s liability for U.S. federal income tax. A stockholder that is not subject to U.S. federal
income tax or otherwise required to file a U.S. federal income tax return would be required to file a U.S. federal income tax return
on the appropriate form to claim a refund for the taxes we paid. To utilize the deemed distribution approach, we must provide written
notice to our stockholders prior to the expiration of 60 days after the close of the relevant taxable year. We cannot treat any
of our investment company taxable income as a “deemed distribution.”



For purposes of determining (1)
whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of distributions paid for that year, we
may, under certain circumstances, elect to treat a distribution that is paid during the following taxable year as if it had been
paid during the taxable year in question. If we make such an election, the U.S. stockholder will still be treated as receiving
the distribution in the taxable year in which the distribution is made. However, any distribution declared by us in October, November
or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during
January of the following year, will be treated as if it had been received by our U.S. stockholders on December 31 of the year in
which the distribution was declared.





15







If an investor purchases shares
of our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution
and the investor will be subject to tax on the distribution even though economically it may represent a return of his, her or its
investment.



A stockholder generally will
recognize taxable gain or loss if the stockholder sells or otherwise disposes of his, her or its shares of our common stock. The
amount of gain or loss will be measured by the difference between such stockholder’s adjusted tax basis in the common stock
sold and the amount of the proceeds received in exchange. Any gain arising from such sale or disposition generally will be treated
as long-term capital gain or loss if the stockholder has held the shares for more than one year. Otherwise, it will be classified
as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of our common stock
held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received,
or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized
upon a disposition of shares of our common stock may be disallowed if other shares of our common stock are purchased (whether through
reinvestment of distributions or otherwise) within 30 days before or after the disposition.



In general, individual U.S. stockholders
currently are subject to a maximum federal income tax rate of 20% on their net capital gain (i.e., the excess of realized net long-term
capital gains over realized net short-term capital losses), including any long-term capital gain derived from an investment in
our shares. Such rate is lower than the maximum rate on ordinary income currently payable by individuals. In addition, an additional
3.8% Medicare tax will be imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from us and net gains from redemptions or other taxable dispositions of our common stock) of U.S. high-income individuals,
and certain estates and trusts. Corporate U.S. stockholders currently are subject to federal income tax on net capital gain at
the maximum 21% corporate income tax rate also applied to ordinary income. Non-corporate stockholders with net capital losses for
a year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary
income each year; any net capital losses of a non-corporate stockholder in excess of $3,000 generally may be carried forward and
used in subsequent years as provided in the Code. Corporate stockholders generally may not deduct any net capital losses for a
year, but may carry back such losses for three years or carry forward such losses for five years.



We (or if a U.S. stockholder holds
shares through an intermediary, such intermediary) will send to each of our U.S. stockholders, as promptly as possible after the
end of each calendar year, a notice detailing, on a per share and per distribution basis, the amounts includible in such U.S.
stockholder’s taxable income for such year as ordinary income and as long-term capital gain. In addition, the federal tax
status of each year’s distributions generally will be reported to the IRS (including the amount of distributions, if any,
eligible for the preferential maximum rate). Distributions paid by us generally will not be eligible for the dividends-received
deduction. Distributions may also be subject to additional state, local and foreign taxes depending on a U.S. stockholder’s
particular situation.



We are required to report adjusted
cost basis information for covered securities which generally include shares of a RIC acquired after January 1, 2012 to the IRS
and to taxpayers. The tax regulations require that we elect a default tax identification methodology to perform the required reporting.
We have chosen the first-in-first-out (“FIFO”) method as the default tax lot identification method for our stockholders.
This is the method we will use to determine which specific shares are deemed to be sold when a stockholder’s entire position
is not sold in a single transaction and is the method in which “covered” share sales will be reported on a stockholder’s
Form 1099. However, at the time of purchase or upon the sale of “covered” shares, stockholders may generally choose
a different tax lot identification method. Stockholders should consult a tax advisor with regard to their personal circumstances
as the Company and its service providers do not provide tax advice. Stockholders should contact their financial intermediaries
with respect to reporting of cost basis and available elections for their accounts.



Backup Withholding. We
may be required to withhold federal income tax (“backup withholding”), currently at a rate of 24%, from all distributions
to any non-corporate U.S. stockholder (1) who fails to furnish us with a correct taxpayer identification number or a certificate
that such stockholder is exempt from backup withholding or (2) with respect to whom the IRS notifies us that such stockholder has
failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individual’s
taxpayer identification number generally is his or her social security number. Any amount withheld under backup withholding is
allowed as a credit against the U.S. stockholder’s federal income tax liability, provided that proper information is provided
to the IRS.



Reportable Transactions Reporting.
If a U.S. stockholder recognizes a loss with respect to shares of our common stock of $2 million or more for an individual stockholder
or $10 million or more for a corporate stockholder, the stockholder must file with the IRS a disclosure statement on Form 8886.
The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s
treatment of the loss is proper. U.S. stockholders should consult their tax advisors to determine the applicability of these regulations
in light of their specific circumstances.





16







Limitation on Deduction
for Certain Expenses



If our stock is not beneficially
owned by at least 500 persons at all times during the taxable year, then a U.S. stockholder that is an individual, estate or trust
may be subject to tax on the stockholder’s share of expenses that we incur. We do not expect our stock to be beneficially
owned by 500 or more persons.



If we do
not satisfy the 500-stockholder requirement, we would be required to report the relevant expenses, including the Management Fee
and Incentive Fee, on Form 1099-DIV, and affected stockholders will be required to take into account as income an amount equal
to their allocable share of such expenses. Moreover, because miscellaneous itemized deductions have been suspended under the Tax
Cuts and Jobs Act of 2017 (the “Tax Act”), affected stockholders would be unable to claim any offsetting deduction.



U.S. Taxation of Tax-Exempt
U.S. Stockholders



A U.S. stockholder that is a
tax-exempt organization for U.S. federal income tax purposes and therefore generally exempt from U.S. federal income taxation may
nevertheless be subject to taxation to the extent that it is considered to derive unrelated business taxable income (“UBTI”).
The direct conduct by a tax-exempt U.S. stockholder of the activities we propose to conduct could give rise to UBTI. However, a
BDC is a corporation for U.S. federal income tax purposes and its business activities generally will not be attributed to its stockholders
for purposes of determining their treatment under current law.



Therefore, a tax-exempt U.S.
stockholder generally should not be subject to U.S. taxation solely as a result of the stockholder’s ownership of our stock
and receipt of dividends with respect to such stock. Moreover, under current law, if we incur indebtedness, such indebtedness generally
will not be attributed to a tax-exempt U.S. stockholder. Therefore, a tax-exempt U.S. stockholder should not be treated as earning
income from “debt- financed property” and dividends we pay should not be treated as “unrelated debt-financed
income” solely as a result of indebtedness that we incur. Proposals periodically are made to change the treatment of “blocker”
investment vehicles interposed between tax-exempt investors and non- qualifying investments. In the event that any such proposals
were to be adopted and applied to BDCs, the treatment of dividends payable to tax- exempt investors could be adversely affected.



Taxation of Non-U.S. Stockholders



The following discussion applies
only to Non-U.S. stockholders. Whether an investment in our shares is appropriate for a Non-U.S. stockholder will depend upon that
person’s particular circumstances. An investment in our shares by a Non-U.S. stockholder may have adverse tax consequences.
Non-U.S. stockholders should consult their tax advisers before investing in our common stock.



Distributions of our investment
company taxable income to Non-U.S. stockholders (including interest income and realized net short-term capital gains in excess
of realized long-term capital losses, which generally would be free of withholding if paid to Non-U.S. stockholders directly) will
be subject to withholding of federal tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent of our current
and accumulated earnings and profits unless an applicable exception applies. If the distributions are effectively connected with
a U.S. trade or business of the Non-U.S. stockholder, we will not be required to withhold federal tax if the Non-U.S. stockholder
complies with applicable certification and disclosure requirements, although the distributions will be subject to federal income
tax at the rates applicable to U.S. persons. (Special certification requirements apply to a Non-U.S. stockholder that is a foreign
partnership or a foreign trust, and such entities are urged to consult their own tax advisers.)



In addition, with respect to
certain distributions made by RICs to Non-U.S. stockholders, no withholding will be required and the distributions generally will
not be subject to federal income tax if (i) the distributions are properly designated in a notice timely delivered to our stockholders
as “interest-related dividends” or “short-term capital gain dividends,” (ii) the distributions are derived
from sources specified in the Code for such dividends and (iii) certain other requirements are satisfied. No assurance can be given
as to whether any of our distributions will be reported as eligible for this exemption from withholding tax.



Actual or deemed distributions
of our net capital gains to a Non-U.S. stockholder, and gains recognized by a Non-U.S. stockholder upon the sale of our common
stock, generally will not be subject to federal withholding tax and will not be subject to U.S. federal income tax unless (i) the
distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the Non-U.S. stockholder
and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the Non-U.S. stockholder in the
United States, or such Non-U.S. stockholder in the United States or (ii) in the case of an individual stockholder, the stockholder
is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or the receipt
of the distributions or gains and certain other conditions are met.



If we distribute our net capital
gains in the form of deemed rather than actual distributions, a Non-U.S. stockholder will be entitled to a U.S. federal income
tax credit or tax refund equal to the stockholder’s allocable share of the tax we pay on the capital gains deemed to have
been distributed. To obtain the refund, the Non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a U.S.
federal income tax return even if the Non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification
number or file a U.S. federal income tax return. For a corporate Non-U.S. stockholder, distributions (both actual and deemed),
and gains realized upon the sale of our common stock that are effectively connected to a U.S. trade or business may, under certain
circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at a lower rate if provided for by
an applicable treaty). Accordingly, investment in the shares may not be appropriate for a Non-U.S. stockholder.





17







Backup Withholding.A
Non-U.S. stockholder who is a non-resident alien individual, and who is otherwise subject to U.S. federal withholding tax, may
be subject to information reporting and backup withholding of federal income tax on dividends unless the Non-U.S. stockholder provides
us or the dividend paying agent with an IRS Form W-8BEN (or an acceptable substitute form) or otherwise meets documentary evidence
requirements for establishing that it is a Non-U.S. stockholder or otherwise establishes an exemption from backup withholding.



Non-U.S. stockholders may also
be subject to U.S. estate tax with respect to their investment in our common stock.



Foreign Account Tax Compliance
Act



Legislation commonly referred
to as the “Foreign Account Tax Compliance Act,” or “FATCA,” generally imposes a 30% withholding tax on
payments of certain types of income to foreign financial institutions (“FFIs”) unless such FFIs either (i) enter into
an agreement with the U.S. Treasury to report certain required information with respect to accounts held by U.S. persons (or held
by foreign entities that have U.S. persons as substantial owners) or (ii) reside in a jurisdiction that has entered into an intergovernmental
agreement (“IGA”) with the United States to collect and share such information and are in compliance with the terms
of such IGA and any enabling legislation or regulations. The types of income subject to the tax include U.S. source interest and
dividends, and the gross proceeds from the sale of any property that could produce U.S.-source interest or dividends received after
December 31, 2018. The information required to be reported includes the identity and taxpayer identification number of each account
holder that is a U.S. person and transaction activity within the holder’s account. Depending on the status of a Non-U.S.
stockholder and the status of the intermediaries through which they hold their shares, Non-U.S. stockholders could be subject to
this 30% withholding tax with respect to distributions on their shares and proceeds from the sale of their shares. Stockholders
may be requested to provide additional information to us to enable us to determine whether withholding is required, such as W-8BEN,
W-8BEN-E or other applicable series W-8.



Non-U.S. persons should consult
their own tax advisers with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences
of an investment in the shares.



Legislative or Other Actions
Affecting RICs



The foregoing discussion is only
a summary and is based upon existing federal income tax law. You should recognize that the federal income tax treatment of an investment
in us may be modified at any time by legislative, judicial or administrative action. Any such changes may have a retroactive effect
with respect to existing transactions and investments and may modify the statements made above. In particular, on December 22,
2017, President Trump signed the Tax Act. The Tax Act includes sweeping changes to U.S. tax laws and represents the most significant
changes to the Code since 1986. You are urged to consult with your own tax advisor with respect to the impact of recent legislation,
including the Tax Act, on your investment in our shares.



THE FOREGOING DISCUSSION SHOULD
NOT BE CONSIDERED TO DESCRIBE FULLY THE FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN US. YOU ARE STRONGLY ADVISED TO CONSULT
WITH YOUR TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX CONSEQUENCES OF AN INVESTMENT IN US.



Item 1A. Risk Factors



Investing in our common stock
involves a number of significant risks. In addition to the other information contained in this Annual Report on Form 10-K, you
should consider carefully the following information before making an investment in our common stock. The risks set forth below
are not the only risks we face, and we may face other risks that we have not yet identified, which we do not currently deem material
or which are not yet predictable. If any of the following events occur, our business, financial condition and results of operations
could be materially and adversely affected. In such case, the net asset value (“NAV”) of our common stock could decline,
and you may lose all or part of your investment.





18







Risks Relating to Our Business
and Structure



We are
a recently-formed company with a limited operating history.



We were formed on March 20, 2017
and commenced operations on May 3, 2017. As a result, we have limited financial information on which you can evaluate an investment
in us or our prior performance. We are subject to all of the business risks and uncertainties associated with any new business,
including the risk that we will not achieve our investment objective and that the value of your investment could decline substantially
or your investment could become worthless. In addition, in order to comply with BDC and RIC requirements, we may invest in temporary
investments, such as cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in
one year or less, which we expect will earn yields substantially lower than the interest, dividend or other income that we anticipate
receiving in respect of suitable portfolio investments. We may not be able to pay significant distributions during this period,
and any such distributions may be substantially lower than the distributions we expect to pay when our portfolio is fully invested.



Our ability to achieve
our investment objective depends on our Adviser’s ability to manage and support our investment process. If our Adviser were
to lose any members of its senior management team, our ability to achieve our investment objective could be significantly harmed.



We are externally managed and
depend upon the investment expertise, diligence, skill and network of business contacts of our Adviser’s investment professionals.
We also depend, to a significant extent, on the information and deal flow generated by these investment professionals in the course
of their investment and portfolio management activities. Our success further depends to a significant extent on the continued service
and coordination of our Adviser’s key professionals, Robert K. Grunewald, our President and Chief Executive Officer, and
Richard A. Petrocelli, our Chief Operating Officer, Chief Financial Officer and Chief Compliance Officer. The departure of either
Mr. Grunewald or Mr. Petrocelli could have a material adverse effect on our ability to achieve our investment objective. In addition,
we can offer no assurance that Flat Rock Global will remain our Adviser or that we will continue to have access to our Adviser’s
investment professionals, information or deal flow.



Future disruptions
or instability in the capital markets could negatively impact the valuation of our investments and our ability to raise capital.



From time to time, the global
capital markets may experience periods of disruption and instability, which could be prolonged and which could materially and adversely
impact the broader financial and credit markets, have a negative impact on the valuations of our investments and reduce the availability
to us of debt and equity capital. For example, between 2008 and 2009, instability in the global capital markets resulted in disruptions
in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk
in the broadly syndicated credit market and the failure of major domestic and international financial institutions. In particular,
the financial services sector was negatively impacted by significant write-offs as the value of the assets held by financial firms
declined, impairing their capital positions and abilities to lend and invest. While our investments are generally not publicly
traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in
a principal market to market participants (even if we plan on holding an investment through its maturity) and impairments of the
market values or fair market values of our investments, even if unrealized, must be reflected in our financial statements for the
applicable period, which could result in significant reductions to our net asset value for the period. Equity capital may also
be difficult to raise during periods of adverse or volatile market conditions. If we are unable to raise capital or refinance existing
debt on acceptable terms, then we may be limited in our ability to make new commitments or to fund existing commitments to our
portfolio companies. Significant changes in the capital markets may also affect the pace of our investment activity and the potential
for liquidity events involving our investments. Thus, the illiquidity of our investments may make it difficult for us to sell such
investments to access capital if required, and as a result, we could realize significantly less than the value at which we have
recorded our investments if we were required to sell them for liquidity purposes.





19







Unfavorable economic
conditions or other factors may affect our ability to borrow for investment purposes, and may therefore adversely affect our ability
to achieve our investment objective.



Unfavorable
economic conditions or other factors could increase our funding costs, limit our access to the capital markets or result in a decision
by lenders not to extend credit to us. An inability to successfully access the capital markets could limit our ability to grow
our business and fully execute our business strategy and could decrease our earnings, if any.



The amount of any
distributions we pay is uncertain. Our distributions to our stockholders may exceed our earnings, particularly during the period
before we have substantially invested the net proceeds from our private offering. Therefore, portions of the distributions that
we pay may represent a return of capital to you which will reduce your tax basis in your shares and reduce the amount of funds
we have for investment in targeted assets. We may not be able to pay you distributions, and our distributions may not grow over
time.



Subject to the Board’s
discretion and applicable legal restrictions, we authorize and declare and intend to continue to authorize and declare monthly
distributions that are paid on a monthly basis. We pay and will continue to pay these distributions to our stockholders out of
assets legally available for distribution. We have not established any limit on the extent to which we may use borrowings, if any,
to fund distributions (which may reduce the amount of capital we ultimately invest in assets). We cannot assure you that we will
achieve investment results that will allow us to make a targeted level of distributions or increase our distribution rate each
year. Our ability to pay distributions may be adversely affected by, among other things, the impact of one or more of the risk
factors described in this Annual Report on Form 10-K. In addition, the inability to satisfy the asset coverage test applicable
to us as a BDC can limit our ability to pay distributions. All distributions will be paid at the discretion of the Board and will
depend on our earnings, our financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and
such other factors as the Board may deem relevant from time to time. In the event that we encounter delays in locating suitable
investment opportunities, we may pay all or a substantial portion of our distributions from the investment proceeds or from borrowings
in anticipation of future cash flow, which may constitute a return of your capital and will reduce your tax basis in your shares.
Distributions from the investment proceeds or from borrowings also could reduce the amount of capital we ultimately invest in our
portfolio companies. There can be no assurance that we will be able to sustain distributions at any particular level or at all.



Price declines in
the market for Senior Loans may adversely affect the fair value of over-the-counter debt securities we hold, reducing our NAV through
increased net unrealized depreciation.



Prior to the onset of the financial
crisis, collateralized loan obligations, which are a type of leveraged investment vehicle holding corporate loans, hedge funds
and other highly leveraged investment vehicles, comprised the majority of the market for purchasing and holding senior secured
and second lien secured loans. As the secondary market pricing of the loans underlying these portfolios deteriorated during the
fourth quarter of 2008, many investors, as a result of their generally high degrees of leverage, were forced to raise cash by selling
their interests in performing loans in order to satisfy margin requirements or the equivalent of margin requirements imposed by
their lenders. This resulted in a forced deleveraging cycle of price declines, compulsory sales, and further price declines, with
widespread redemption requests and other constraints resulting from the credit crisis generating further selling pressure. Conditions
in the market for Senior Loans may deteriorate again, which may cause pricing levels to decline. As a result, we may suffer unrealized
depreciation and could incur realized losses in connection with the sale of over-the-counter debt securities we acquire, which
could have a material adverse impact on our business, financial condition and results of operations.





20







We may face increasing
competition for investment opportunities, which could delay deployment of our capital, reduce returns and result in losses.



We compete for investments with
other BDCs and investment funds (including private equity funds and mezzanine debt funds), as well as traditional financial services
companies such as commercial banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds,
also make similar investments in Senior Loans. Many of our competitors are substantially larger and have considerably greater financial,
technical and marketing resources than we do. For example, some competitors may have a lower cost of capital and access to funding
sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments
than we have. These characteristics could allow our competitors to consider a wider variety of investments in Senior Loans, establish
more relationships and offer better pricing and more flexible structuring than we are able to do. We may lose investment opportunities
in Senior Loans if we do not match our competitors’ pricing, terms and structure. If we are forced to match our competitors’
pricing, terms and structure, we may not be able to achieve acceptable returns on our investments in Senior Loans or may bear substantial
risk of capital loss. A significant part of our competitive advantage stems from our belief that the market for investments in
Senior Loans is underserved by traditional commercial banks and other financial sources. A significant increase in the number or
the size of our competitors in this market could force us to accept less attractive investment terms. Furthermore, many of our
competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes
on us as a BDC.



A significant portion
of our investment portfolio is recorded at fair value as determined in good faith by the Board, and, as a result, there is and
will be uncertainty as to the value of our portfolio investments.



Under the 1940 Act, we are required
to carry our portfolio investments at market value or, if there is no readily available market value, at fair value, as determined
by the Board. However, the majority of our investments will not be publicly traded or actively traded on a secondary market. As
a result, we will value these securities quarterly at fair value as determined in good faith by the Board, with the assistance
of one or more third-party valuation firms and/or pricing services.



Certain factors that may be considered
in determining the fair value of our investments include dealer quotes for securities traded on the secondary market for institutional
investors, the nature and realizable value of any collateral, the portfolio company’s earnings and its ability to make payments
on its indebtedness, the markets in which the portfolio company does business, comparison to comparable publicly-traded companies,
discounted cash flow and other relevant factors. Because such valuations, and particularly valuations of private securities and
private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations
of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Due
to this uncertainty, our fair value determinations may cause our NAV on a given date to materially understate or overstate the
value that we may ultimately realize upon the sale of one or more of our investments.



The Board may change
certain of our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse
to stockholders.



The Board has the authority to
modify or waive certain of our current operating policies, investment criteria and strategies without prior notice and without
stockholder approval, if it determines that doing so will be in the best interests of stockholders. We cannot predict the effect
any changes to our current operating policies, investment criteria and strategies would have on our business, NAV, operating results
and value of our common stock. Such effects might be adverse, which could negatively impact our ability to pay you distributions
and cause you to lose all or part of your investment. Our election to be regulated and to operate as a BDC cannot be withdrawn
or discontinued without a stockholder vote. However, we will have significant flexibility in investing and may invest in ways with
which investors may not agree or for purposes other than those contemplated at this time.



Our business model
depends to a significant extent upon strong referral relationships with financial institutions, sponsors and investment professionals.
Any inability of our Adviser to maintain or develop these relationships, or the failure of these relationships to generate investment
opportunities, could adversely affect our business.



We depend upon our Adviser to
maintain relationships with financial institutions, sponsors and investment professionals, and we will continue to rely to a significant
extent upon these relationships to provide us with potential investment opportunities. If our Adviser fails to maintain such relationships,
or to develop new relationships with other sources of investment opportunities, we will not be able to grow our investment portfolio.
In addition, individuals with whom the principals of our Adviser have relationships are not obligated to provide us with investment
opportunities, and, therefore, we can offer no assurance that these relationships will generate investment opportunities for us
in the future.





21







Our financial condition
and results of operation will depend on our ability to manage our business effectively.



Our ability to achieve our investment
objective and grow will depend on our ability to manage our business. This will depend, in turn, on the ability of the Investment
Committee to identify, invest in and monitor companies that meet our investment criteria. The achievement of our investment objectives
on a cost-effective basis will depend upon the ability of the Investment Committee to execute on our investment process and the
ability to provide competent, attentive and efficient services to us and, to a lesser extent, to provide us with access to financing
on acceptable terms. Our Adviser has substantial responsibilities under the Advisory Agreement. Our Adviser’s senior professionals
and other personnel may be called upon to provide managerial assistance to our portfolio companies. These activities may distract
these professionals or slow our rate of investment. Any failure to manage our business and our future growth effectively could
have a material adverse effect on our business, financial condition and results of operations.



Changes in laws or
regulations governing our operations may adversely affect our business or cause us to alter our business strategy.



We and our
portfolio companies are subject to regulation at the local, state and federal level. New legislation may be enacted or new interpretations,
rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which
could harm us and our stockholders, potentially with retroactive effect.



Additionally, any changes to
the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy
to avail ourselves of new or different opportunities. Such changes could result in material differences to our strategies and plans
and may result in our investment focus shifting from the areas of expertise of our Adviser to other types of investments in which
our Adviser may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse
effect on our results of operations and the value of your investment.



We may experience
fluctuations in our operating results.



We may experience fluctuations
in our quarterly operating results due to a number of factors, including our ability or inability to make investments in Senior
Loans that meet our investment criteria, variations in the interest rates on the debt securities we acquire, the level of our expenses,
variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition
in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon
as being indicative of performance in future periods.



Global
markets could enter a period of severe disruption and instability due to catastrophic events, such as terrorist attacks, acts
of war, natural disasters, and outbreaks of epidemic, pandemic or contagious diseases, which could impair our portfolio companies’
financial positions and operating results and affect the industries in which we invest and, in turn, harm our operating results.



The U.S. and global
markets have, from time to time, experienced periods of disruption due to events such as terrorist attacks; acts of war; natural
disasters, such as earthquakes, tsunamis, fires, floods or hurricanes; and outbreaks of epidemic, pandemic or contagious diseases.
Such events have created, and continue to create, economic and political uncertainties and have contributed to recent global economic
instability. In particular, outbreaks of epidemic, pandemic or contagious diseases may cause serious harm to our business, operating
results and financial condition. Historically, disease pandemics such as the Ebola virus, Middle East Respiratory Syndrome, Severe
Acute Respiratory Syndrome or the H1N1 virus, have diverted resources and priorities towards the treatment of such diseases. In
December 2019, a strain of novel coronavirus causing respiratory illness, or COVID-19, emerged in the city of Wuhan in the Hubei
province of China. We are closely monitoring the developments in China, the U.S. and throughout the world, and continually assessing
the potential impact on our business and the business of our portfolio companies, including the effects described below. 
However, the full impact of this outbreak is unknown as of the date of this report.



Any prolonged disruptions
in the business of our portfolio companies, including a disruption in their supply chains may adversely affect their ability to
obtain the necessary raw materials or components to make their products or cause a decline in the demand for their products or
services, leading to a negative impact on their operating results. In addition, such events may lead to restrictions on travel
to and from the affected areas, making it more difficult for our portfolio companies to conduct their businesses. As a result of
pandemic outbreaks, including COVID-19, businesses can be shut down, supply chains can be interrupted, slowed, or rendered inoperable,
and individuals can become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions.
Governmental mandates may require forced shutdowns of our portfolio companies’ facilities for extended or indefinite periods.
In addition, these widespread outbreaks of illness, particularly in China, North America, Europe, or other locations significant
to the operations of our portfolio companies, could adversely affect their workforce, resulting in serious health issues and absenteeism,
and may cause serious harm to our results of operations, business, or prospects.



Furthermore, future
terrorist activities, military or security operations, natural disasters, disease outbreaks, pandemics or other similar events
could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact our portfolio
companies. During these periods of disruption, general economic conditions may deteriorate with material and adverse consequences
for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial
services firms in particular. Such economic adversity could impair our portfolio companies’ financial positions and operating
results and affect the industries in which we invest, which could, in turn, harm our operating results. These conditions may reoccur
for a prolonged period of time or materially worsen in the future.







22







The failure in cybersecurity
systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning
could impair our ability to conduct business effectively.



The occurrence of a disaster
such as a cyberattack, a natural catastrophe, an industrial accident, events unanticipated in our disaster recovery systems, or
a support failure from external providers could have an adverse effect on our ability to conduct business and on our results of
operations and financial condition, particularly if those events affect our Adviser’s computer-based data processing, transmission,
storage, and retrieval systems or destroy data. If a significant number of our investment professionals were unavailable in the
event of a disaster, our ability to effectively conduct our business could be severely compromised.



We and our Adviser depend heavily
upon computer systems to perform necessary business functions. Despite implementation of a variety of security measures, our and
our Adviser’s computer systems could be subject to cyberattacks and unauthorized access, such as physical and electronic
break-ins or unauthorized tampering. Like other companies, we and our Adviser may experience threats to our data and systems, including
malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs,
it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through,
our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage
to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.



Third parties with whom we do
business may also be sources of cybersecurity or other technological risks. We outsource certain functions and these relationships
allow for the storage and processing of our information, as well as customer, counterparty, employee and borrower information.
While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized access,
loss, exposure or destruction of data, or other cybersecurity incidents, with increased costs and other consequences, including
those described above.



The effect of global
climate change may impact the operations of our portfolio companies.



Climate change creates physical
and financial risk and some of our portfolio companies may be adversely affected by climate change. For example, extreme weather
conditions in general require more system backup, adding to costs, and can contribute to increased system stresses, including
service interruptions. In December 2015, the United Nations, of which the U.S. is a member, adopted a climate accord (the “Paris
Agreement”) with the long-term goal of limiting global warming and the short-term goal of significantly reducing greenhouse
gas emissions. The U.S. subsequently ratified the Paris Agreement, and it entered into
force on November 4, 2016. However, on June 1, 2017, President Donald Trump announced that the U.S. would cease all participation
in the Paris Agreement and as a result, some of our portfolio companies may no longer be subject to new or strengthened regulations
or legislation, which could have increased their operating costs and/or decreased their revenues.



We incur significant
costs as a result of our reporting obligations.



We incur legal, accounting and
other expenses, including costs associated with the periodic reporting requirements applicable to a company registered under the
Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act and
other rules implemented by the SEC.



Risks Related
to Flat Rock Global



The Advisory Agreement
and the Administration Agreement with Flat Rock Global were not negotiated on an arm’s length basis and may not be as favorable
to us as if they had been negotiated with an unaffiliated third party.



The Advisory Agreement and the
Administration Agreement were negotiated between related parties. Consequently, their terms, including fees payable to our Adviser,
may not be as favorable to us as if they had been negotiated with an unaffiliated third party. In addition, we could choose not
to enforce, or to enforce less vigorously, our rights and remedies under these agreements because of our desire to maintain our
ongoing relationship with our Adviser. Any such decision, however, would breach our fiduciary obligations to our stockholders.





23







Our Adviser, including
our officers and some of our directors, face conflicts of interest caused by compensation arrangements with us, and such compensation
arrangements may induce our Adviser to make speculative investments or incur debt, which can be adverse to the interests of our
stockholders.



Our Adviser
is entitled to receive substantial fees from us in return for its services, and these fees could influence the advice provided
to us. Among other matters, the compensation arrangements could affect its judgment with respect to investments described in this
Annual Report on Form 10-K or any future private or public offerings of equity by us, which could allow our Adviser to earn additional
management fees.



Further, the incentive fee payable
by us to our Adviser may create an incentive for it to make investments on our behalf that are risky or more speculative than would
be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to our Adviser is determined
may encourage our Adviser to use leverage to increase the return on our investments. In addition, the fact that our management
fee is payable based upon our gross assets, which include any borrowings for investment purposes, may encourage our Adviser to
use leverage to make additional investments. Under certain circumstances, the use of leverage may increase the likelihood of default,
which would disfavor holders of our common stock. Such a practice could result in our investing in more speculative securities
than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns.



The fees that we pay
our Adviser could impact our investment returns.



We pay management and incentive
fees to our Adviser and reimburse our Adviser for certain expenses it incurs. In addition, investors in our common stock will invest
on a gross basis and receive distributions on a net basis after expenses, resulting in, among other things, a lower rate of return
than one might achieve through direct investments.



The part of the incentive fee
payable by us that relates to our pre-incentive fee net investment income is computed and paid on income that may include interest
that is accrued but not yet received in cash. If a portfolio company defaults on a loan that is structured to provide accrued interest,
it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible. A portfolio
company may default on a loan for which prior interest payments were part of the pre-incentive fee net investment income calculation.



In selecting and structuring
investments appropriate for us, our Adviser will consider the investment and tax objectives of us and our stockholders as a whole,
not the investment, tax or other objectives of any stockholder individually.



Certain of our stockholders may
have different investment, tax and other objectives with respect to their investments in us. The different interests of individual
stockholders may relate to or arise from, among other things, the nature of our investments, the structure or the acquisition of
our investments, and the timing of disposition of our investments. As a consequence, conflicts of interest may arise in connection
with decisions made by our Adviser, including with respect to the nature or structuring of our investments, that may be more beneficial
for one stockholder than for another stockholder, especially with respect to stockholders’ individual tax situations.



Our Adviser can resign
on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in
our operations that could adversely affect our financial condition, business and results of operations.



Our Adviser has the right, under
the Advisory Agreement, to resign at any time upon not less than 60 days’ written notice, whether we have found a replacement
or not. If our Adviser resigns, we may not be able to find a new investment adviser or hire internal management with similar expertise
and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so
quickly, our financial condition, business and results of operations as well as our ability to pay distributions are likely to
be adversely affected and the value of our shares may decline. In addition, the coordination of our internal management and investment
activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives
having the expertise possessed by our Adviser. Even if we are able to retain comparable management, whether internal or external,
the integration of such management and their lack of familiarity with our investment objective may result in additional costs and
time delays that may adversely affect our financial condition, business and results of operations.





24







Flat Rock Global can
resign from its role as our Administrator under the Administration Agreement, and we may not be able to find a suitable replacement,
resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.



Flat Rock Global has the right
to resign as our Administrator under the Administration Agreement, whether we have found a replacement or not. If our Administrator
resigns, we may not be able to find a new administrator or hire internal management with similar expertise and ability to provide
the same or equivalent services on acceptable terms, or at all. If we are unable to do so quickly, our financial condition, business
and results of operations as well as our ability to pay distributions are likely to be adversely affected and the value of our
shares may decline. In addition, the coordination of our internal management and administrative activities is likely to suffer
if we are unable to identify and reach an agreement with a service provider or individuals with the expertise possessed by our
Administrator. Even if we are able to retain a comparable service provider or individuals to perform such services, whether internal
or external, their integration into our business and lack of familiarity with our investment objective may result in additional
costs and time delays that may adversely affect our financial condition, business and results of operations.



Our Adviser’s
liability is limited under the Advisory Agreement, and we have agreed to indemnify our Adviser against certain liabilities, which
may lead our Adviser to act in a riskier manner on our behalf than it would when acting for its own account.



Under the Advisory Agreement,
our Adviser will not assume any responsibility to us other than to render the services called for us under the Advisory Agreement,
and it will not be responsible for any action of the Board in following or declining to follow our Adviser’s advice or recommendations.
Under the terms of the Advisory Agreement, our Adviser and its affiliates’ respective officers, directors, members, managers,
shareholders and employees will not be liable to us, our directors, and our stockholders for acts or omissions performed in accordance
with and pursuant to the Advisory Agreement, except to the extent specified in Section 36(b) of the 1940 Act concerning loss resulting
from a breach of fiduciary duty (as the same is finally determined by judicial proceedings). These protections may lead our Adviser
to act in a riskier manner when acting on our behalf than it would when acting for its own account.



Risks Related to Business
Development Companies



Our failure to invest
a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status as a BDC.



As a BDC, we may not acquire
any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least
70% of our total assets are qualifying assets. See “Item 1. Business - Regulation as a Business Development Company.”
Therefore, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying
assets. If we fail to invest a sufficient portion of our assets in qualifying assets, we could lose our status as a BDC, which
could have a material adverse effect on our business, financial condition and results of operations. Similarly, these rules could
prevent us from making additional investments in existing portfolio companies, which could result in the dilution of our position,
or could require us to dispose of investments at an inopportune time to comply with the 1940 Act. If we were forced to sell non-qualifying
investments in our portfolio for compliance purposes, the proceeds from such sale could be significantly less than the current
value of such investments.



Failure to maintain
our status as a BDC would reduce our operating flexibility.



If we do not maintain our status
as a BDC, we would be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially
more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility.



Regulations governing
our operation as a BDC and RIC will affect our ability to raise, and the way in which we raise, additional capital or borrow for
investment purposes, which may have a negative effect on our growth.



As a result of the annual distribution
requirement to qualify as a RIC, we may need to continually raise capital to fund new investments. We may issue “senior securities,”
including borrowing money from banks or other financial institutions only in amounts such that our asset coverage, as defined in
the 1940 Act, meets the requirements under the 1940 Act, which currently requires an asset coverage ratio equaling at least 150%
after such incurrence or issuance. See “— Risks Relating to Debt Financing.”Our ability to issue different
types of securities is also limited. Compliance with these requirements may unfavorably limit our investment opportunities and
reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and
the rates at which we can lend.





25







We utilize leverage to generate
capital to make additional investments. If the value of our assets declines, we may be unable to satisfy the asset coverage test
under the 1940 Act, which could prohibit us from paying distributions and could prevent us from qualifying as a RIC. If we cannot
satisfy the asset coverage test, we may be required to sell a portion of our investments and, depending on the nature of our debt
financing, repay a portion of our indebtedness at a time when such sales and repayments may be disadvantageous.



Under the 1940 Act, we generally
are prohibited from issuing or selling our common stock at a price below NAV per share, which may be a disadvantage as compared
with other public companies. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock,
at a price below the current NAV of our common stock if the Board, including a majority of our independent directors, determine
that such sale is in our best interests and the best interests of our stockholders, and our stockholders, including our stockholders
that are not affiliated with us, approve such sale. In any such case, the price at which our securities are to be issued and sold
may not be less than a price that, in the determination of the Board, closely approximates the fair value of such securities.



Our ability to enter
into transactions with our affiliates is restricted.



We are prohibited under the 1940
Act from participating in certain transactions with certain of our affiliates without the prior approval of a majority of our independent
directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities
will be our affiliate for purposes of the 1940 Act and we will generally be prohibited from buying or selling any securities from
or to such affiliate, absent the prior approval of the Board. The 1940 Act also prohibits certain “joint” transactions
with certain of our affiliates, which could include investments in the same portfolio company (whether at the same or different
times), without prior approval of the Board and, in some cases, the SEC. If a person acquires more than 25% of our voting securities,
we will be prohibited from buying or selling any security from or to such person or certain of that person’s affiliates,
or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit
our ability to transact business with our officers or directors or their affiliates. As a result of these restrictions, we may
be prohibited from buying or selling any security from or to any portfolio company of a fund managed by Flat Rock Global without
the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us.



Risks Related to Our Investments



Our investments in
middle-market companies are risky and we may suffer credit losses.



Investing in middle-market companies
is highly speculative and involves a high degree of risk of credit loss, and therefore our securities may not be suitable for someone
with a low tolerance for risk. Middle-market companies are more likely to be considered lower grade investments, commonly called
“junk,” which are either rated below investment grade by one or more nationally-recognized statistical rating agencies
at the time of investment, or may be unrated but determined by our Adviser to be of comparable quality. Lower grade securities
or comparable unrated securities are considered predominantly speculative regarding the portfolio company’s ability to pay
interest and principal, and are susceptible to default or decline in market value due to adverse economic and business developments.
These risks are likely to increase during volatile economic periods.



Our investments in
Senior Loans involve risk and we could lose all or part of our investment.



Investing in Senior Loans involves
a number of significant risks. Below investment grade Senior Loans have historically experienced greater default rates than has
been the case for investment grade securities. We intend to achieve our investment objective by investing in a portfolio composed
primarily of securities that are rated below investment grade by rating agencies, or that would be rated below investment grade
if they were rated. Below investment grade securities, which are often referred to as “junk,” have predominantly speculative
characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to
value and illiquid. There can be no assurance as to the levels of defaults or recoveries that may be experienced on our investments
in Senior Loans. Senior Loans in which we invest may be issued by companies with limited financial resources and limited access
to alternative financing. Issuers of Senior Loans may be unable to meet their obligations under their debt securities that we hold.
Such developments may be accompanied by deterioration in the value of collateral backing our investments. This could lead to a
decline in value of our Senior Loan investments, which could result in a decline in our net earnings and NAV.





26







We may engage in active
and frequent trading of Senior Loans, which could result in a relatively high portfolio turnover rate and a more volatile NAV per
share. In addition, active and frequent trading will result in increased transaction and execution costs, which could negatively
impact our financial condition and your investment in us.



We may engage in active and frequent
trading of Senior Loans. If we pursue this strategy, we expect that we will have a relatively high portfolio turnover rate. Portfolio
turnover and active and frequent trading may lead to the realization and distribution to our stockholders of higher short-term
capital gains, which would increase their tax liability. Further, active and frequent trading generally involves some expense to
us and to our stockholders, such as higher transactional and brokerage costs associated with the portfolio turnover, which may
reduce our returns to our stockholders. These trading costs and tax effects associated with portfolio turnover may also adversely
affect our performance.



In addition, active and frequent
trading will result in a more volatile NAV per share. Active trading could result in the value of our portfolio appreciating or
decreasing significantly over short periods of time, also causing our NAV per share to experience significant increases or decreases
over short periods of time.



We
intend to invest in Senior Loans, which include Senior Loans of large-market companies. An investment in such Senior Loans bears
lower credit risk and correspondingly offers lower yields. As a result, investments in these Senior Loans could result in a lower
distribution rate than distribution rates of comparable BDCs.



An investment in Senior Loans,
like an investment in any debt instrument, is a function of the credit risk associated with the borrower. Credit risk is the risk
that a borrower will fail to make principal and interest payments when due or otherwise default on the terms of the debt instrument.
Borrowers with higher credit risk typically offer higher yields to compensate for this added risk of default. Conversely, borrowers
with lower credit risk typically offer lower yields. Therefore, under normal market conditions, an investment in a Senior Loan
of a borrower with a higher credit risk will generate a higher yield to investor, assuming the borrower makes all required interest
and principal payments in a timely manner and according to the terms of the debt instrument.



We intend
to invest in Senior Loans, which include Senior Loans of large-market companies. Large-market companies typically have lower credit
risk and a correspondingly lower yield. Lower yields from our Senior Loan investments could therefore result in a lower distribution
rate to our stockholders than the distribution rates of other BDCs that make investments in primarily or exclusively middle-market
and lower middle-market companies. As a result, an investment in us may result in a lower return than an investment in other BDCs.



We may acquire interests
in Senior Loans either directly or indirectly. A holder of a participation in a loan is subject to additional risks not applicable
to a holder of a direct interest in a loan.



We may acquire interests in Senior
Loans either directly (by way of assignment from the selling institution) or indirectly (by purchasing a participation from the
selling institution). As described in more detail below, holders of participations are subject to additional risks not applicable
to a holder of a direct interest in a loan.



Participations we acquire in
a selling institution’s portion of a loan typically result in a contractual relationship only with such selling institution,
not with the borrower. In the case of a participation, we will generally have the right to receive payments of principal, interest
and any fees to which we are entitled only from the institution selling the participation and only upon receipt by such selling
institution of such payments from the borrower. By holding a participation in a loan, we generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement and may not directly benefit from the collateral supporting the
loan in which we have purchased the participation. As a result, we will assume the credit risk of both the borrower and the institution
selling the participation, which will remain the legal owner of record of the applicable loan. In the event of the insolvency of
the selling institution, we may be treated as a general unsecured creditor of the selling institution, and even to the extent we
are considered to have rights to the underlying loan proceeds, the value of such rights may be diminished by the exercise of setoff
between the selling institution and the borrower.





27







In addition, we may purchase
a participation from a selling institution that does not itself retain any beneficial interest in any portion of the applicable
loan and, therefore, may have limited interest in monitoring the terms of the loan agreement and the continuing creditworthiness
of the borrower. When we hold a participation in a loan, we will not have the right to vote under the applicable loan agreement
with respect to every matter that arises thereunder, and it is expected that each selling institution will reserve the right to
administer the loan sold by it as it sees fit and, subject to the terms of the participation agreement, to amend the documentation
evidencing such loan in all respects. Selling institutions voting in connection with such matters may have interests different
from ours and may fail to consider our interests in connection with their votes.



In contrast, the purchaser of
an assignment of an interest in a loan typically succeeds to all of the rights and obligations of the assigning selling institution
and becomes a lender under the loan agreement with respect to that loan. As a purchaser of an assignment, we generally will have
the same voting rights as other lenders under the applicable loan agreement, including the right to approve amendments to the loan
agreement, to waive enforcement of breaches of covenants or to enforce compliance by the borrower with the terms of the loan agreement,
and the right to set off claims against the borrower and to have recourse to collateral supporting the loan. Assignments are, however,
arranged through private negotiations between assignees and assignors, and in certain cases the rights and obligations acquired
by the purchaser of an assignment may differ from, and be more limited than, those held by the assigning selling institution.



Assignments
and participations are sold without recourse to the selling institutions, and the selling institutions will generally make minimal
or no representations or warranties about the underlying loans, the borrowers, the documentation of the loans or any collateral
securing the loans. In addition, we will be bound by provisions of the underlying loan agreements, if any, that require the preservation
of the confidentiality of information provided by the borrower.



Covenant-lite loans may offer
us fewer protections than traditional credit investments.



Many of the debt investments we
may acquire in the secondary market may have less restrictive covenant terms that provide us with fewer protections, called “covenant-lite”
loans, that generally provide for fewer restrictions on the borrower’s operations and use of proceeds than do debt instruments
that contain traditional financial and operating covenants. In particular, borrowers under such covenant-lite loans often
have greater flexibility in how they use proceeds of such borrowings, as well as how they operate their business and manage their
financial condition. As a result, we may face challenges in recovering on such covenant-lite loans, to the extent they
go into distress, and may lack options that would normally be available to us as a lender under more traditional debt structures.



Investments in equity
securities involve a substantial degree of risk.



We may invest in equity securities
in various portfolio companies. Although equity securities historically have generated higher average total returns than debt securities
over the long term, equity securities may experience more volatility in those returns than debt securities. The equity securities
we acquire may fail to appreciate, decline in value or lose all value, and our ability to recover our investment will depend on
our portfolio company’s success. Investments in equity securities involve a number of significant risks, including the risk
of further dilution in the event the portfolio company issues additional securities. Investments in preferred securities involve
special risks, such as the risk of deferred distributions, illiquidity and limited voting rights.



Changes in interest
rates may affect our net investment income and NAV.



Our net
investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we
invest those funds. As a result, we can offer no assurance that a significant change in interest rates would not have a material
adverse effect on our net investment income. In periods of declining interest rates, our interest income could decrease, which
could reduce our net investment income.



In addition, a substantial amount
of our debt investments are likely to be based on floating rates, such as the London interbank offered rate, or LIBOR, EURIBOR,
the Federal Funds Rate or the Prime Rate. General interest rate fluctuations may have a substantial negative impact on our investments,
the value of our shares and our rate of return on invested capital. A reduction in the interest rates on new investments relative
to interest rates on current investments could also have an adverse impact on our investment income. An increase in interest rates
could decrease the value of any investments we hold which earn fixed interest rates, including subordinated loans, senior and junior
secured and unsecured debt securities and loans and high yield bonds, and also could increase our interest expense, thereby decreasing
our net investment income. Also, an increase in interest rates available to investors could make an investment in our common stock
less attractive if we are not able to increase our distributions, which could reduce the value of our shares. Also, an increase
in interest rates may result in an increase of the amount of our pre-incentive fee net investment income and, as a result, an increase
in incentive fees payable to the Adviser.



The interest rate environment
in the medium- and large-sized U.S. corporate debt market may experience disruption in the future, which may cause pricing levels
to decline or be volatile. As a result, our NAV could decline through an increase in unrealized depreciation and incurrence of
realized losses in connection with the sale of our investments, which could have a material adverse impact on our business, financial
condition and results of operations.





28







The interest rates
of our term loans to our portfolio companies that extend beyond 2021 might be subject to change based on recent regulatory changes.



LIBOR is the basic rate of interest
used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on
loans globally. We typically use LIBOR as a reference rate in term loans we extend to portfolio companies such that the interest
due to us pursuant to a term loan extended to a partner company is calculated using LIBOR. Some of our term loan agreements with
partner companies contain a stated minimum value for LIBOR.



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. It
is unclear if at that time whether LIBOR will cease to exist or if new methods of calculating LIBOR will be
established such that it continues to exist after 2021. In addition, in April 2018, the Federal Reserve System, in conjunction
with the Alternative Reference Rates Committee, announced the replacement of LIBOR with a new index, calculated by short-term
repurchase agreements collateralized by U.S. Treasury securities, called the Secured Overnight Financing Rate, or the SOFR. At
this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement tool, and the future of LIBOR is
still uncertain. As such, the potential effect of the phase-out or replacement of LIBOR on our cost of capital and net
investment income cannot yet be determined.



Actions by the British Bankers’
Association, the United Kingdom Financial Conduct Authority or other regulators or law enforcement agencies as a result of these
or future events, may result in changes to the manner in which LIBOR is determined. Potential changes, or uncertainty
related to such potential changes, may adversely affect the market for LIBOR-based securities, including our portfolio of LIBOR-indexed,
floating-rate debt securities. In addition, any further changes or reforms to the determination or supervision of LIBOR may
result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based
securities or the value of our portfolio of LIBOR-indexed, floating-rate debt securities.



Our portfolio companies
may incur debt that ranks equally with, or senior to, our investments in such companies.



Our portfolio companies may have,
or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, such
debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled
to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution,
reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio
company would typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors,
such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking
equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors
holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio
company.



There may be circumstances
where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.



Even though we intend to generally
invest in Senior Loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including
the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize
our debt investment and subordinate all or a portion of our claim to that of other creditors. In situations where a bankruptcy
carries a high degree of political significance, our legal rights may be subordinated to other creditors. We may also be subject
to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control
over the borrower. A number of judicial decisions have upheld judgments of borrowers against lending institutions on the basis
of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded
on the premise that a lender has violated a duty (whether implied or contractual) of good faith, commercial reasonableness and
fair dealing, or a similar duty owed to the borrower or has assumed an excessive degree of control over the borrower resulting
in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders. Because of the nature of our debt
investments we may be subject to allegations of lender liability.



In addition, under common law
principles that in some cases form the basis for lender liability claims, if a lender or bondholder (a) intentionally takes an
action that results in the undercapitalization of a borrower to the detriment of other creditors of such borrower, (b) engages
in other inequitable conduct to the detriment of such other creditors, (c) engages in fraud with respect to, or makes misrepresentations
to, such other creditors or (d) uses its influence as a stockholder to dominate or control a borrower to the detriment of other
creditors of such borrower, a court may elect to subordinate the claim of the offending lender or bondholder to the claims of the
disadvantaged creditor or creditors, a remedy called “equitable subordination.” Because of the nature of our debt investments,
we may be subject to claims of equitable subordination.



Because affiliates of, or persons
related to, Flat Rock Global may hold equity or other interests in obligors of our portfolio companies, we could be exposed to
claims for equitable subordination or lender liability or both based on such equity or other holdings.



The preceding discussion is based
upon principles of U.S. federal and state laws. Insofar as debt investments are obligations of non-U.S. obligors, the laws of certain
foreign jurisdictions may impose liability upon lenders or bondholders under factual circumstances similar to those described above,
with consequences that may or may not be analogous to those described above under U.S. federal and state laws.





29







Our portfolio may
be concentrated in a limited number of companies and industries, which will subject us to a risk of significant loss if any of
these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.



Our portfolio is and may in the
future be concentrated in a limited number of companies and industries. Beyond the asset diversification requirements associated
with our qualification as a RIC under the Code, we do not have fixed guidelines for diversification. As a result, the aggregate
returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write
down the value of any one investment. Additionally, while we are not targeting any specific industries, our investments may be
concentrated in relatively few industries. As a result, a downturn in any particular industry in which we are heavily invested
could also significantly impact the aggregate returns we realize.



We may invest in obligations
of non-U.S. obligors, which involve certain risks related to regional economic conditions and risks not normally associated with
investments in the obligations of sovereign and corporate obligors located in the United States.



To qualify and maintain our qualification
as a BDC, we must generally invest 70% of our investments in U.S.-based companies. We may also invest in obligations of obligors
organized or incorporated under the laws of a country other than the United States or a state or territory thereof. Investments
in the obligations of non-U.S. obligors involve certain special risks related to regional economic conditions and sovereign risks
which are not normally associated with investments in the obligations of sovereign and corporate obligors located in the United
States. We are unable to provide any information regarding the specific risks associated with purchasing a loan, participation
interest or other investment governed by a law other than those of a U.S. jurisdiction. These risks may include economic uncertainty,
fluctuations of currency exchange rates, lower levels of disclosure and regulation in foreign securities markets, confiscatory
taxation, taxation of income earned in foreign nations or other taxes or restrictions imposed with respect to investments in foreign
nations, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country and repatriation
of investments) and uncertainties as to the status, interpretation and application of laws including, but not limited to, those
relating to insolvency. In addition, there is often less publicly available information about non-U.S. obligors than about sovereign
and corporate obligors in the United States. Sovereign and corporate obligors in countries other than the United States may not
be subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements for both
foreign public and private obligors may not be comparable to those applicable to U.S. companies. It also may be difficult to obtain
and enforce a judgment relating to investments issued by a non-U.S. obligor in a court outside the United States.



We generally will
not control our portfolio companies.



We generally will not control
our portfolio companies, even though we may have board of directors representation or board of directors observation rights, and
our debt agreements may contain certain restrictive covenants. As a result, we are subject to the risk that a portfolio company
in which we invest may make business decisions with which we disagree and the management of such company, as representatives of
the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors.
Due to the lack of liquidity for our investments in privately held companies, we may not be able to dispose of our interests in
our portfolio companies as readily as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions
that could decrease the value of our portfolio holdings.



Defaults by our portfolio
companies will harm our operating results.



A portfolio company’s failure
to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination
of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a
portfolio company’s ability to meet its obligations under the debt or equity securities that we hold. We may incur expenses
to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial
covenants, with a defaulting portfolio company.



We may hold Senior
Loans issued by companies that may enter into bankruptcy proceedings.



Senior Loan issuers may experience
bankruptcy or similar financial distress. The bankruptcy process has a number of significant inherent risks. Many events in a bankruptcy
proceeding are the product of contested matters and adversary proceedings and are beyond the control of the creditors. A bankruptcy
filing by an issuer may adversely and permanently affect the issuer. If the proceeding is converted to a liquidation, the value
of the issuer may be significantly less than the liquidation value that was believed to exist at the time of the investment. The
duration of a bankruptcy proceeding is also difficult to predict, and a creditor’s return on investment can be adversely
affected by delays until the plan of reorganization or liquidation ultimately becomes effective. The administrative costs of a
bankruptcy proceeding are frequently high and would be paid out of the debtor’s estate prior to any return to creditors.
Because the standards for classification of claims under bankruptcy law are vague, our influence with respect to the class of securities
or other obligations we own may be lost by increases in the number and amount of claims in the same class or by different classification
and treatment. In the early stages of the bankruptcy process, it is often difficult to estimate the extent of, or even to identify,
any contingent claims that might be made. In addition, certain claims that have priority by law (for example, claims for taxes)
may be substantial.





30







We may participate
on creditors’ committees to negotiate the management of financially troubled companies.



We may (through an agent) participate
on committees formed by creditors to negotiate the management of financially troubled companies that may or may not be in bankruptcy
or we may seek to negotiate directly with the debtors with respect to restructuring issues. If we do join a creditors’ committee,
the participants of the committee would be interested in obtaining an outcome that is in their respective individual best interests
and there can be no assurance of obtaining results most favorable to our interests. By participating on such committees, we may
be deemed to have duties to other creditors represented by the committees, which might expose us to liability to such other creditors
who disagree with our actions.



We may also be provided with
material non-public information that may restrict our ability to trade in such company’s securities. While we intend to comply
with all applicable securities laws and to make judgments concerning restrictions on trading in good faith, we may trade in a company’s
securities while engaged in such company’s restructuring activities. Such trading creates a risk of litigation and liability
that may cause us to incur significant legal fees and potential losses.



Engaging in hedging
transactions may expose us to additional risks.



We may enter into interest rate
or currency hedges. Hedging against interest rate and currency fluctuations expose us to additional risks and could harm our financial
performance. Our use of hedging would not eliminate the risk that the value of our investments could decline or that our investment
performance would be better off if we did not hedge. The effectiveness of our hedging is dependent on the price we pay for the
hedge and the correlation of the hedge to the risk it is designed to mitigate. It may arise that the cost of a hedging instrument
exceeds its expected benefits or that an instrument may not hedge all of the risk for which it was designed to mitigate. Additionally,
the use of hedging instruments exposes us to counterparty risk including the failure to perform under the contract such as nonpayment.
In the case of the early termination of a hedge agreement upon the occurrence of certain events of default or termination events
set forth in the hedge agreement we may be required to make a payment to the hedge provider.



Risks Associated with
OID and PIK Interest Income.



Although we do not expect that
a significant portion of our income will be comprised of OID and PIK income, we may make investments that include OID and PIK components.
To the extent OID and PIK interest income constitute a portion of our income, we will be exposed to risks associated with such
income being required to be included in an accounting income and taxable income prior to receipt of cash, including the following:



| | ● | OID instruments and PIK securities may have unreliable valuations because the accretion of OID as interest income and the continuing
accruals of PIK securities require judgments about their collectability and the collectability of deferred payments and the value
of any associated collateral.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | OID instruments may create heightened credit risks because the inducement to the borrower to accept higher interest rates in
exchange for the deferral of cash payments typically represents, to some extent, speculation on the part of the borrower.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | For accounting purposes, cash distributions to stockholders that include a component of accreted OID income do not come from
paid-in capital, although they may be paid from offering proceeds. Thus, although a distribution of accreted OID income may come
from the cash invested by the stockholders, the 1940 Act does not require that stockholders be given notice of this fact.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The higher interest rates on PIK securities reflects the payment deferral and increased credit risk associated with such instruments
and PIK securities generally represent a significantly higher credit risk than coupon loans.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The presence of accreted OID income and PIK interest income create the risk of non-refundable cash payments to the Adviser
in the form of incentive fees on income based on non-cash accreted OID income and PIK interest income accruals that may never be
realized.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Even if the conditions for income accrual under Generally Accepted Accounting Principles (“GAAP”) are satisfied, borrowers could still default when actual payment is due
at the maturity of such loan.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | PIK interest has the effect of generating investment income and increasing the incentive fees payable at a compounding rate.
In addition, the deferral of PIK interest also reduces the loan-to-value ratio at a compounding rate.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





31







Prepayments
of Senior Loans by our portfolio companies could adversely impact our results of operations and reduce our return on equity.



We are subject to the risk that
our investments in Senior Loans may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in
temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have
substantially lower yields than the debt representing the Senior Loan being prepaid, and we could experience significant delays
in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was
repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies
elect to prepay amounts owed to us. Additionally, prepayments, net of prepayment fees, could negatively impact our return on equity.



Risks
Relating to Debt Financing



We
currently incur indebtedness to make investments, which magnifies the potential for gain or loss on amounts invested in our common
stock and may increase the risk of investing in our common stock.



The use of borrowings and other
types of financing, also known as leverage, magnifies the potential for gain or loss on amounts invested and, therefore, increases
the risks associated with investing in our common stock. When we use leverage to partially finance our investments, through borrowing
from banks and other lenders or issuing debt securities, we, and therefore our stockholders, will experience increased risks of
investing in our common stock. Any lenders and debt holders would have fixed dollar claims on our assets that are senior to the
claims of our stockholders. If the value of our assets increases, then leverage would cause the net asset value attributable to
our common stock to increase more sharply than it would have had we not utilized leverage.



Conversely, if the value of our
assets decreases, leverage would cause net asset value to decline more sharply than it otherwise would have had we not utilized
leverage. Similarly, any increase in our income in excess of interest payable on our indebtedness would cause our net investment
income to increase more than it would without leverage, while any decrease in our income would cause net investment income to decline
more sharply than it would have had we not utilized leverage. Such a decline could negatively affect our ability to make distributions
to stockholders.



Leverage is generally considered
a speculative investment technique.



Illustration. The following
table illustrates the effect of leverage on returns from an investment in shares of our common stock assuming various annual returns,
net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing
below. The calculation assumes (i) $300.0 million in total assets, (ii) a weighted average cost of funds of 5.06%, (iii) $200.0
million in debt outstanding (i.e., assumes that the maximum amount of debt permitted under the 1940 Act minimum asset coverage
requirement is outstanding as of December 31, 2019) and (iv) $100.0 million in stockholders’ equity. In order to compute
the “Corresponding return to stockholders,” the “Assumed Return on Our Portfolio (net of expenses)” is
multiplied by the assumed total assets to obtain an assumed return to us. From this amount, the interest expense is calculated
by multiplying the assumed weighted average cost of funds times the assumed debt outstanding, and the product is subtracted from
the assumed return to us in order to determine the return available to stockholders. The return available to stockholders is then
divided by our stockholders’ equity to determine the “Corresponding return to stockholders.” Actual interest
payments may be different.



|Assumed Return on Our Portfolio (net of expenses) |  |  | -10    | % |  |  | -5    | % |  |  | 0     | % |  |  | 5    | % |  |  | 10   | %
|------------------------------------------------- |  |  | ------ | - |  |  | ----- | - |  |  | ----- | - |  |  | ---- | - |  |  | ---- | -
|Corresponding return to stockholders              |  |  | -13.37 | % |  |  | -8.37 | % |  |  | -3.37 | % |  |  | 1.63 | % |  |  | 6.63 | %



Similarly, assuming (i) $300.0
million in total assets, (ii) a weighted average cost of funds of 5.06% and (iii) $200.0 million in debt outstanding (i.e., assuming
that the maximum amount of debt permitted under the 1940 Act minimum asset coverage requirement is outstanding as of December 31,
2019), our assets would need to yield an annual return (net of expenses) of approximately 3.59% in order to cover the annual interest
payments on our outstanding debt.





32







Our
business could be adversely affected in the event we default under the Credit Facility or any future credit or other borrowing
facility.



We have entered into the Credit Facility,
through a special purpose wholly-owned subsidiary, FRC Funding I, LLC, with certain financial institutions as lenders, State Bank
and Trust Company as the administrative agent and Alostar Capital Finance, as Lead Arranger and Bookrunner. In the event we default
under the Credit Facility or any future credit or other borrowing facility, our business could be adversely affected as we may
be forced to sell a portion of our investments quickly and prematurely at what may be disadvantageous prices to us in order to
meet our outstanding payment obligations and/or support working capital requirements under such credit facility or such future
credit or other borrowing facility, any of which would have a material adverse effect on our business, ability to pay dividends,
financial condition, results of operations and cash flows. If we were unable to obtain a waiver of a default from the lenders or
holders of that indebtedness, as applicable, those lenders or holders could accelerate repayment under that indebtedness, which
may result in cross- acceleration of other indebtedness. An acceleration could have a material adverse impact on our business,
financial condition and results of operations.



In addition, following any such default,
the agent for the lenders under the Credit Facility or such future credit or other borrowing facility could assume control of the
disposition of any or all of our assets, including the selection of such assets to be disposed and the timing of such disposition,
which could have a material adverse effect on our business, financial condition, results of operations and cash flows.



Lastly, as a result of any such default,
we may be unable to obtain additional leverage, which could, in turn, affect our return on capital.



We are and may be subject
to restrictions under the Credit Facility and any future credit or other borrowing facility that could adversely impact our business.



The Credit Facility, and any
future credit or other borrowing facility, may be backed by all or a portion of our loans and securities on which the lenders may
have a security interest. We may pledge up to 100% of our assets and may grant a security interest in all of our assets under the
terms of any debt instrument we enter into with lenders. We expect that any security interests we grant will be set forth in a
pledge and security agreement and evidenced by the filing of financing statements by the agent for the lenders. In addition, we
expect that the custodian for our securities serving as collateral for such loan would include in its electronic systems notices
indicating the existence of such security interests and, following notice of occurrence of an event of default, if any, and during
its continuance, will only accept transfer instructions with respect to any such securities from the lender or its designee. If
we were to default under the terms of any debt instrument, the agent for the applicable lenders would be able to assume control
of the timing of disposition of any or all of our assets securing such debt, which would have a material adverse effect on our
business, financial condition, results of operations and cash flows.



In addition, any security interests,
as well as negative covenants, included in the Credit Facility or any future credit or other borrowing facility may limit our ability
to create liens on assets to secure additional debt and may make it difficult for us to restructure or refinance indebtedness at
or prior to maturity or obtain additional debt or equity financing. In addition, if our borrowing base under the Credit Facility
or any future credit or other borrowing facility were to decrease, we would be required to secure additional assets in an amount
equal to any borrowing base deficiency.



In addition, under the Credit
Facility or any future credit or other borrowing facilities, we may be subject to limitations as to how borrowed funds may be used,
which may include restrictions on geographic and industry concentrations, loan size, payment frequency and status, average life,
collateral interests and investment ratings, as well as restrictions on leverage, which may affect the amount of funding that may
be obtained. There may also be certain requirements relating to portfolio performance, including required minimum portfolio yield
and limitations on delinquencies and charge-offs, a violation of which could limit further advances and, in some cases, result
in an event of default. An event of default under either the Credit Facility or any future credit or other borrowing facility could
result in an accelerated maturity date for all amounts outstanding thereunder, which could have a material adverse effect on our
business and financial condition. This could reduce our revenues and, by delaying any cash payment allowed to us under the Credit
Facility or any other borrowing facility until the lenders have been paid in full, reduce our liquidity and cash flow and impair
our ability to grow our business and/or make distributions to stockholders required to maintain our ability to be eligible for
treatment as a RIC.



Recent
legislation allows us to incur additional leverage.



The 1940 Act generally prohibits
us from incurring indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least
200% (i.e., the amount of debt may not exceed 50% of the value of our assets). However, recent legislation has modified the 1940
Act by allowing a BDC to increase the maximum amount of leverage it may incur from an asset coverage ratio of 200% to an asset
coverage ratio of 150%, if certain requirements are met. Under the legislation, we are allowed to increase our leverage capacity
if stockholders representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so. Alternatively,
the legislation allows the majority of our independent directors to approve an increase in our leverage capacity, and such approval
would become effective after one year. In addition, the legislation requires non-listed BDCs to offer to repurchase 25% of its
securities each quarter following the calendar quarter in which the BDC obtains such approval. In either case, BDCs are required
to make certain disclosures on their websites and in SEC filings regarding, among other things, the receipt of approval to increase
their leverage, their leverage capacity and usage, and risks related to leverage.





33







On May 30, 2018, the Board, including
a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the application
of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. In order to comply with the requirement
that we extend, within twelve months of May 30, 2018, to each of our stockholders as of May 30, 2018, the opportunity to sell the
securities held by that stockholder as of that date, we completed four separate tender offers, each of which offered to repurchase
up to 25% of the total number of shares outstanding as of the date immediately prior to the date of the tender offer. As a result
of the SBCAA and the actions taken by our Board and the satisfaction of the requirement that we provide our stockholders an opportunity
to have their shares repurchased through four separate tender offers, we are able to incur leverage up to an amount that reduces
our asset coverage ratio from 200% to 150%.



Leverage magnifies the potential
for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance our investments,
you will experience increased risks of investing in our securities. If the value of our assets increases, then leveraging would
cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely,
if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have
had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would
cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause
net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our
ability to pay common stock dividends, scheduled debt payments or other payments related to our securities. Leverage is generally
considered a speculative investment technique.



Because
we may use debt to finance certain of our investments, if market interest rates were to increase, our cost of capital could increase,
which could reduce our net income. In addition, if additional debt were to become unavailable, it could have a materially adverse
effect on our business, financial condition and results of operations.



Because we may borrow money to
finance certain of our investments, our net income will depend, in part, upon the difference between the rate at which we borrow
funds and the rate at which we invest those funds. As a result, a significant increase in market interest rates would have a greater
material adverse effect on our net income in the event we use more debt to finance our investments. In periods of rising interest
rates, our cost of funds would increase, which could reduce our net income. In addition, if a credit facility were to become unavailable
to us and attractive alternative financing sources were not available, it could have a materially adverse effect on our business,
financial condition and results of operations.



In
addition, a rise in the general level of interest rates typically leads to higher interest rates applicable to our secured loans.
Accordingly, an increase in interest rates may result in an increase of our income and, as a result, an increase in the incentive
fee payable to our Adviser.



The base management
and incentive fee structure we have with our Adviser may create incentives that are not fully aligned with the interests of our
stockholders.



In the course of our investing
activities, we pay a base management fee and an incentive fee to our Adviser. The Advisory Agreement that we entered into with
our Adviser provides that the base management fee is based on the value of our gross assets. As a result, investors in our common
stock will invest on a “gross” basis and receive distributions on a “net” basis after expenses, resulting
in a lower rate of return than one might achieve through direct investments. Because these fees are based on the value of our total
assets, our Adviser benefits when we incur debt or use leverage. This fee structure may encourage our Adviser to cause us to borrow
money to finance additional investments. Additionally, because the “hurdle” rate with respect to the portion of the
incentive fee based on investment income is fixed, any increase in the use of leverage is likely to increase such portion of the
incentive fee because the use of leverage could result in an increase in net income. As a result of this arrangement, our Adviser
may from time to time have interests that differ from those of our stockholders, giving rise to a conflict.



Our incentive fee
may induce our Adviser to pursue speculative investments and to use leverage when it may be unwise to do so.



The incentive fee payable by
us to our Adviser may create an incentive for our Adviser to make investments on our behalf that are risky or more speculative
than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to our Adviser
is determined, which is calculated separately in two components as a percentage of the interest and other investment income in
excess of a quarterly minimum hurdle rate and as a percentage of the realized gain on invested capital, may encourage our Adviser
to use leverage or take additional risk to increase the return on our investments.





34







In addition,
our Adviser receives the incentive fee based, in part, upon net capital gains realized on our investments. Unlike the portion of
the incentive fee based on investment income, there is no minimum level of gain applicable to the portion of the incentive fee
based on net capital gains. As a result, our Adviser may have an incentive to invest more in investments that are likely to result
in capital gains as compared to income producing securities or to advance or delay realizing a gain in order to enhance its incentive
fee. This practice could result in our investing in more speculative securities than would otherwise be the case, which could result
in higher investment losses, particularly during economic downturns.



We may enter into repurchase agreements,
which may affect the value of your investment in us.



We may enter into repurchase
agreements as part of our management of our temporary investment portfolio. Our use of repurchase agreements, if any, involves
many of the same risks involved in our use of leverage, as the proceeds from repurchase agreements generally will be invested in
additional securities. Also, we will be exposed to the credit risk of the seller of the securities under a repurchase agreement.
For example, if a seller of securities under a repurchase agreement were to file for bankruptcy or experience insolvency, we may
be adversely affected and that may have a negative effect on our results of operations and your investment in us.



Risks Relating to Our Common
Stock



We may in the future
determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the
risks of investing in us in the same way as our borrowings.



Preferred stock, which is another
form of leverage, has the same risks to our common stockholders as borrowings because the dividends on any preferred stock we issue
may be cumulative. Payment of such dividends and repayment of the liquidation preference of such preferred stock must take preference
over any dividends or other payments to our common stockholders, and preferred stockholders are not subject to any of our expenses
or losses and are not entitled to participate in any income or appreciation in excess of their stated preference.



Our shares will not
be listed on an exchange or quoted through a quotation system for the foreseeable future, if ever. Therefore, investors that purchase
our shares will have limited liquidity.



Our shares of common stock are
illiquid assets for which there is not expected to be any secondary market nor is it expected that any will develop in the future.
We intend to explore a potential liquidity event for our stockholders between five and seven years following the completion of
our offering stage. However, there can be no assurance that we will complete a liquidity event within such time or at all. We expect
that the Board, in the exercise of its duties to us, will determine to pursue a liquidity event when it believes that then-current
market conditions are favorable for a liquidity event, and that such an event is in our best interests. A liquidity event could
include (1) the sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by
a liquidation, (2) a listing of our shares on a national securities exchange or (3) a merger or another transaction approved by
our board in which our stockholders will receive cash or shares of a publicly traded company.



While our intention is to explore
a potential liquidity event between five and seven years following the completion of our offering stage, which may be extended
for an indefinite period of time, there can be no assurance that a suitable transaction will be available or that market conditions
for a liquidity event will be favorable during that timeframe.



Under the terms of
our Amended and Restated Articles of Incorporation (the “Charter”), the Board is authorized to issue shares of preferred
stock with rights and privileges superior to common stockholders without common stockholder approval.



Even though we have no current
intention to do so, under the terms of the Charter, the Board is authorized to issue shares of preferred stock in one or more classes
or series without stockholder approval. The Board has discretion to set the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption
for each class or series of preferred stock.







35







Every issuance of preferred stock
will be required to comply with the requirements of the 1940 Act. The 1940 Act requires, among other things, that (1) immediately
after issuance and before any distribution is made with respect to our common stock and before any purchase of common stock is
made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets
after deducting the amount of such distribution or purchase price, as the case may be, and (2) the holders of shares of preferred
stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors
if distributions on such preferred stock are in arrears by two years or more. Certain matters under the 1940 Act require the separate
vote of the holders of any issued and outstanding preferred stock.



Certain provisions
of the Charter and bylaws as well as provisions of the Maryland General Corporation Law could deter takeover attempts and have
an adverse impact on the value of our common stock.



The Charter and our bylaws, as
well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third
party from attempting to acquire us. Under the Maryland General Corporation Law, “control shares” acquired in a “control
share acquisition” have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be
cast on the matter, excluding shares owned by the acquirer, by officers or by employees who are directors of the corporation. Our
bylaws contain a provision exempting from the Control Share Acquisition Act under the Maryland General Corporation Law any and
all acquisitions by any person of our shares of stock. Our board may amend the bylaws to remove that exemption in whole or in part
without stockholder approval. It is the position of the staff of the SEC’s Division of Investment Management that if a BDC
fails to amend its bylaws to opt out of the Control Share Acquisition Act, the BDC acts in a manner inconsistent with the 1940
Act.



Under the Maryland General Corporation
Law, certain statutory provisions permit a corporation that is subject to the Exchange Act and that has at least three independent
directors to be subject to certain corporate governance provisions notwithstanding any contrary provision in the corporation’s
charter and bylaws. Among other provisions, a board of directors may classify itself without the vote of stockholders. Further,
the Board, by electing into certain statutory provisions and notwithstanding any contrary provision in the charter or bylaws, may
(i) provide that a special meeting of stockholders will be called only at the request of stockholders entitled to cast at least
a majority of the votes entitled to be cast at the meeting, (ii) reserve for itself the right to fix the number of directors, and
(iii) retain for itself the exclusive power to fill vacancies created by the death, removal or resignation of a director. A corporation
may be prohibited by its charter or by resolution of its board of directors from electing to be subject to any of the provisions
of the statute. We are not prohibited from implementing any or all of the statute.



Additionally, the Board may,
without stockholder action, amend the Charter from time to time to increase or decrease the aggregate number of shares of stock
or the number of shares of stock of any class or series that we have authority to issue. These provisions may inhibit a change
of control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the value
of our common stock.



The NAV of our common
stock may fluctuate significantly.



The NAV, of our shares of common
stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to
our operating performance. These factors include:



| | ● | changes in the value of our portfolio of investments and derivative instruments as a result of changes in market factors, such
as interest rate shifts, and also portfolio specific performance, such as portfolio company defaults, among other reasons;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;
| | - | --------------------------------------------------------------------------------------------



| | ● | loss of RIC or BDC status;
| | - | --------------------------



| | ● | distributions that exceed our net investment income and net income as reported according to U.S. GAAP;
| | - | ------------------------------------------------------------------------------------------------------



| | ● | changes in earnings or variations in operating results;
| | - | -------------------------------------------------------



| | ● | changes in accounting guidelines governing valuation of our investments;
| | - | ------------------------------------------------------------------------



| | ● | any shortfall in revenue or net income or any increase in losses from levels expected by investors;
| | - | ---------------------------------------------------------------------------------------------------



| | ● | departure of key personnel of our Adviser;
| | - | ------------------------------------------



| | ● | general economic trends and other external factors; and
| | - | -------------------------------------------------------



| | ● | loss of a major funding source.
| | - | -------------------------------





36







Federal Income Tax Risks



If we fail to qualify
or maintain our qualification as a RIC, we would be subject to certain corporate-level taxes.



To obtain and maintain RIC tax
treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements.
See “Certain U.S. Federal Income Tax Considerations.”



| | ● | The annual distribution requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at
least 90% of our net ordinary income and net short-term capital gain in excess of net long-term capital loss, if any. We will be
subject to corporate- level U.S. federal income tax on any of our undistributed income or gain. Additionally, we will be subject
to a 4% nondeductible federal excise tax to the extent that we do not satisfy certain additional minimum distribution requirements
on a calendar-year basis. Because we may use debt financing, we are subject to an asset coverage ratio requirement under the 1940
Act and may in the future become subject to certain financial covenants under loan and credit agreements that could, under certain
circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain
cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The income source requirement will be satisfied if we obtain at least 90% of our gross income for each year from dividends,
interest, gains from the sale of stock or securities or similar sources.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The asset diversification requirements must be satisfied at the end of each quarter of our taxable year. At least 50% of the
value of our assets must consist of cash, cash equivalents, U.S. government securities, securities of other RICs, and other acceptable
securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities
or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules,
by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded
partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order
to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively
illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If we fail to qualify for or
maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially
reduce our net assets, the amount of income available for distribution and the amount of our distributions. We may also be subject
to certain U.S. federal excise taxes, as well as state, local and foreign taxes.



We may have difficulty
paying our required distributions if we recognize income before or without receiving cash representing such income.



For federal income tax purposes,
we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For
example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt
instruments with PIK interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants),
we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless
of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other
amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan
or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original
issue discount or other income required to be included in taxable income prior to receipt of cash. Further, we may elect to amortize
market discount and include such amounts in our taxable income in the current year, instead of upon disposition, as an election
not to do so would limit our ability to deduct interest expenses for tax purposes, which is subject to other limitations under
U.S. federal income tax law.



Because any original issue discount
or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required
to make a distribution to our stockholders in order to satisfy the annual distribution requirement even though we will not have
received any corresponding cash amount. As a result, we may have difficulty meeting the annual distribution requirement necessary
to obtain and maintain RIC tax treatment under the Code. We may have to sell some of our investments at times or at prices we would
not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we
are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and become subject to corporate-level
income tax. For additional discussion regarding the tax implications of a RIC, see “Certain U.S. Federal Income Tax Considerations
—Taxation as a RIC.”



We may be subject
to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce
the price of our shares.



In recent years, numerous legislative,
judicial and administrative changes have been made in the provisions of the federal income tax laws applicable to investments similar
to an investment in our shares. In particular, the Tax Act includes sweeping changes to U.S. tax laws and represents the most significant
changes to the Code since 1986. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that
any such changes will not adversely affect your taxation, the investment in our shares or the market value or the resale potential
of our assets. You are urged to consult with your own tax advisor with respect to the impact of recent legislation, including the
Tax Act, on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals
and their potential effect on an investment in our shares.





37







ITEM 1B. UNRESOLVED STAFF
COMMENTS



None.



ITEM 2. PROPERTIES



We maintain
our principal executive offices at 1350 6th Avenue, 18th Floor, New York, NY 10019. We do not own any real estate or other physical
properties materially important to our operations. We believe that our present facilities are adequate to meet our current needs.
If new or additional space is required, we believe that adequate facilities are available at competitive prices in the same area.



ITEM 3. LEGAL PROCEEDINGS



We are not currently subject
to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time
to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to
the enforcement of our rights under loans to or other contracts with our portfolio companies.



ITEM 4. MINE SAFETY DISCLOSURES



None.





38







PART
II



ITEM 5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Market Information



There is currently no public
market for our common stock, nor can we give any assurance that one will develop. As of the date hereof, none of our shares of
common stock are subject to outstanding options or warrants, nor do we have any outstanding equity that is convertible into shares
of our common stock. In addition, as of the date hereof, we have not granted any registration rights to any of our stockholders.
No stock has been authorized for issuance under any equity compensation plans.



Holders



Set forth below is a chart describing
the classes of our securities outstanding as of March 10, 2020:



|                |  | (1) |  |  | (2)        |  |             | (3)                     |  |  | (4)                                     | 
|--------------- |  | --- |  |  | ---------- |  | ----------- | ----------------------- |  |  | --------------------------------------- | 
|                |  |     |  |  |            |  |             | Amount                  |  |  | Amount
 Outstanding                     | 
|                |  |     |  |  | Amount     |  |             | Held by
 Us or
 for Our |  |  | Exclusive of
 Amount
 Held by Us or for | 
|Title of Class  |  |     |  |  | Authorized |  |             | Account                 |  |  | Our Account                             | 
|Common Stock    |  |     |  |  |            |  | 125,000,000 |                         |  |  | —                                       | 
|Preferred Stock |  |     |  |  |            |  | 25,000,000  |                         |  |  | —                                       | 



As of March 10, 2020,
we had 610 record holders of our common stock.



Distributions



The following table reflects the distrubtions declared on shares during the fiscal year ended December 31, 2019:



|            |  |            |  |       |       |  |         |           | Total         |  
|----------- |  | ---------- |  | ----- | ----- |  | ------- | --------- | ------------- | -
|Declaration |  | Record     |  | Per   |       |  | Payment |           | Distributions |  
|Date        |  | Date       |  | Share |       |  | Date    |           | Declared      |  
|11/13/2018  |  | 1/26/2019  |  | $     | 0.108 |  |         | 2/6/2019  |               | $
|11/13/2018  |  | 2/26/2019  |  |       | 0.108 |  |         | 3/6/2019  |               |  
|2/28/2019   |  | 3/26/2019  |  |       | 0.108 |  |         | 4/8/2019  |               |  
|3/28/2019   |  | 4/26/2019  |  |       | 0.111 |  |         | 5/6/2019  |               |  
|3/28/2019   |  | 5/26/2019  |  |       | 0.111 |  |         | 6/6/2019  |               |  
|5/14/2019   |  | 6/26/2019  |  |       | 0.111 |  |         | 7/6/2019  |               |  
|5/14/2019   |  | 7/26/2019  |  |       | 0.114 |  |         | 8/6/2019  |               |  
|5/14/2019   |  | 8/26/2019  |  |       | 0.114 |  |         | 9/6/2019  |               |  
|8/12/2019   |  | 9/26/2019  |  |       | 0.114 |  |         | 10/7/2019 |               |  
|8/12/2019   |  | 10/24/2019 |  |       | 0.114 |  |         | 11/6/2019 |               |  
|8/12/2019   |  | 11/25/2019 |  |       | 0.114 |  |         | 12/6/2019 |               |  
|11/12/2019  |  | 12/23/2019 |  |       | 0.114 |  |         | 1/6/2020  | (1)           |  
|            |  |            |  |       |       |  |         |           |               | $



(1) As
of December 31, 2019, this distribution had not been paid, which consisted of a cash dividend of $257,614 and dividendsreinvested
of $52,845. See balance payable on the Consolidated Statements of Assets and Liabilities, as well as disclosure of
payment noted in Note 11 to the consolidated financial statements.





39









The following table reflects the distrubtions declared on shares during the fiscal year ended December 31, 2018:



|            |  |            |  |       |       |  |         |           | Total         |  
|----------- |  | ---------- |  | ----- | ----- |  | ------- | --------- | ------------- | -
|Declaration |  | Record     |  | Per   |       |  | Payment |           | Distributions |  
|Date        |  | Date       |  | Share |       |  | Date    |           | Declared      |  
|1/26/2018   |  | 1/26/2018  |  | $     | 0.108 |  |         | 2/6/2018  |               | $
|2/26/2018   |  | 2/26/2018  |  |       | 0.108 |  |         | 3/6/2018  |               |  
|3/26/2018   |  | 3/26/2018  |  |       | 0.108 |  |         | 4/6/2018  |               |  
|4/26/2018   |  | 4/26/2018  |  |       | 0.108 |  |         | 5/6/2018  |               |  
|5/26/2018   |  | 5/26/2018  |  |       | 0.108 |  |         | 6/6/2018  |               |  
|6/26/2018   |  | 6/26/2018  |  |       | 0.108 |  |         | 7/6/2018  |               |  
|7/26/2018   |  | 7/26/2018  |  |       | 0.108 |  |         | 8/6/2018  |               |  
|8/26/2018   |  | 8/26/2018  |  |       | 0.108 |  |         | 9/6/2018  |               |  
|9/26/2018   |  | 9/26/2018  |  |       | 0.108 |  |         | 10/6/2018 |               |  
|10/26/2018  |  | 10/26/2018 |  |       | 0.108 |  |         | 11/6/2018 |               |  
|11/26/2018  |  | 11/26/2018 |  |       | 0.108 |  |         | 12/6/2018 |               |  
|11/13/2018  |  | 12/26/2018 |  |       | 0.108 |  |         | 1/7/2019  | (1)           |  
|            |  |            |  |       |       |  |         |           |               | $



(1) As
of December 31, 2018, this distribution had not been paid, which consisted of a cash dividend of $200,145 and no dividends
reinvested. See balance payable on the Consolidated Statements of Assets and Liabilities, as well as disclosure of payment
noted in Note 11 to the consolidated financial statements.



The following table reflects the distrubtions declared on shares during the fiscal year ended December 31, 2017:



|            |  |            |  |       |       |  |         |           | Total         |  
|----------- |  | ---------- |  | ----- | ----- |  | ------- | --------- | ------------- | -
|Declaration |  | Record     |  | Per   |       |  | Payment |           | Distributions |  
|Date        |  | Date       |  | Share |       |  | Date    |           | Declared      |  
|8/25/2017   |  | 8/25/2017  |  | $     | 0.108 |  |         | 9/6/2017  |               | $
|9/26/2017   |  | 9/26/2017  |  |       | 0.108 |  |         | 10/6/2017 |               |  
|10/26/2017  |  | 10/26/2017 |  |       | 0.108 |  |         | 11/6/2017 |               |  
|11/26/2017  |  | 11/26/2017 |  |       | 0.108 |  |         | 12/6/2017 |               |  
|12/26/2017  |  | 12/26/2017 |  |       | 0.108 |  |         | 1/6/2018  | (1)           |  
|            |  |            |  |       |       |  |         |           |               | $



(1) As
of December 31, 2017, this distribution had not been paid, which consisted of a cash dividend of $110,964 and no dividends
reinvested. See balance payable on the Consolidated Statements of Assets and Liabilities, as well as disclosure of payment
noted in Note 11 to the consolidated financial statements.



We generally intend to distribute,
out of assets legally available for distribution, substantially all of our available earnings, on a monthly basis, as determined
by our Board in its discretion.



Distribution Reinvestment Plan



On March 28, 2019, the Board approved the establishment of
a distribution reinvestment plan (the “DRIP”). The DRIP was effective as of, and was first applied to the reinvestment
of cash distributions paid on or after, May 1, 2019.



Under the DRIP, cash distributions paid to participating stockholders
are reinvested in Shares at a price equal to the net asset value per share of the Shares as of such date. New stockholders of
the Company on or after May 1, 2019 became participating stockholders in the DRIP unless they affirmatively declined participation
in the DRIP. Existing stockholders of the Company prior to May 1, 2019 were given the opportunity to participate in the DRIP.





40







The following table reflects the common stock issued pursuant
to the DRIP during the period May 1, 2019 to December 31, 2019:



|Declaration |  | Record     |  | Payment   |     |        |       
|----------- |  | ---------- |  | --------- | --- | ------ | ------
|Date        |  | Date       |  | Date      |     | Shares |       
|3/28/2019   |  | 5/26/2019  |  | 6/6/2019  |     |        | 2,208 
|5/14/2019   |  | 6/26/2019  |  | 7/6/2019  |     |        | 2,220 
|5/14/2019   |  | 7/26/2019  |  | 8/6/2019  |     |        | 2,503 
|5/14/2019   |  | 8/26/2019  |  | 9/6/2019  |     |        | 2,605 
|8/12/2019   |  | 9/26/2019  |  | 10/7/2019 |     |        | 2,605 
|8/12/2019   |  | 10/24/2019 |  | 11/6/2019 |     |        | 2,642 
|8/12/2019   |  | 11/25/2019 |  | 12/6/2019 |     |        | 2,660 
|11/12/2019  |  | 12/23/2019 |  | 1/6/2020  | (1) |        | 2,676 
|            |  |            |  |           |     |        | 20,119



(1) As of December 31, 2019,
this distribution had not been paid, which consisted of a reinvestment of 2,676 shares at a value of $52,845. See balance payable
on the Consolidated Statements of Assets and Liabilities, as well as disclosure of payment noted in Note 11 to the consolidated
financial statements.



Valuation of Portfolio Securities



We determine the net asset value
per share of our common stock quarterly. The net asset value per share is equal to the value of our total assets minus liabilities
and any preferred stock outstanding divided by the total number of shares of common stock outstanding. At present, we do not have
any preferred stock outstanding.



Our investments are valued at
the end of each fiscal quarter. Substantially all of our investments are expected to be in loans that do not have readily ascertainable
market prices. The fair value of assets that are not publicly traded or whose market prices are not readily available are determined
in good faith by our Board with the assistance of our Adviser and one or more third party valuation firms. In connection with that
determination, investment professionals from our Adviser prepare portfolio company valuations using sources and/or proprietary
models depending on the availability of information on the type of asset being valued, all in accordance with our valuation policy.
The Board has retained independent valuation providers to assist it by performing certain limited third-party valuation services.
The participation of our Adviser in our valuation process could result in a conflict of interest, since the Management Fee is based
in part on our gross assets.



Because fair valuations, and
particularly fair valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods
of time and are often based to a large extent on estimates, comparisons and qualitative evaluations of private information, our
determinations of fair value may differ materially from the values that would have been determined if a ready market for these
securities existed. This could make it more difficult for investors to value accurately our portfolio investments and could lead
to undervaluation or overvaluation of our common shares. In addition, the valuation of these types of securities may result in
substantial write-downs and earnings volatility.



Recent sales of Unregistered Securities



During the year
ended December 31, 2019, the Company issued and sold 1,021,942 shares of its common stock at an aggregate purchase price of
approximately $20.2 million. The issuance of the shares of common stock was exempt from the registration requirements of the
Securities Act, pursuant to Section 4(a)(2) and Rule 506(b) of Regulation D thereof.



41







ITEM 6. SELECTED FINANCIAL
DATA



The following selected
consolidated financial data for the year ended December 31, 2019 is derived from our consolidated financial statements which
have been audited by Cohen & Company, Ltd., our independent registered public accounting firm. The following selected
consolidated financial data for the year ended December 31, 2018 and the period from May 3, 2017 (commencement of operations)
through December 31, 2017 is derived from our consolidated financial statements which have been audited by the predecessor
auditor.



|                                                           |  |                    |             |   |                                                    |   |            | For the Period     | 
|---------------------------------------------------------- |  | ------------------ | ----------- | - | -------------------------------------------------- | - | ---------- | ------------------ | 
|                                                           |  | For the Year Ended |             |   | May 3, 2017
 (commencement of
 operations) through |  
|                                                           |  | December 31,
 2019 |             |   | December 31,
 2018                                 |   |            | December 31,
 2017 | 
|Total investment income                                    |  | $                  | 6,695,755   |   |                                                    | $ | 2,478,527  |                    | 
|Total expenses                                             |  |                    | 4,149,972   |   |                                                    |   | 1,697,528  |                    | 
|Less: Management fee waiver                                |  |                    | (265,221    | ) |                                                    |   | (625,782   | )                  | 
|Less: Incentive fee waiver                                 |  |                    | (408,149    | ) |                                                    |   | -          |                    | 
|Less: Expense reimbursement                                |  |                    | -           |   |                                                    |   | (101,939   | )                  | 
|Net expenses                                               |  |                    | 3,476,602   |   |                                                    |   | 969,807    |                    | 
|Net investment income                                      |  |                    | 3,219,153   |   |                                                    |   | 1,508,720  |                    | 
|Net realized gains (losses) on investments                 |  |                    | (59,546     | ) |                                                    |   | 246,416    |                    | 
|Net change in unrealized
    gains (losses) on investments |  |                    | 10,041      |   |                                                    |   | (590,623   | )                  | 
|Net increase in net assets resulting from operations       |  | $                  | 3,169,648   |   |                                                    | $ | 1,164,513  |                    | 
|                                                           |  |                    |             |   |                                                    |   |            |                    | 
|Per share information - basic and diluted                  |  |                    |             |   |                                                    |   |            |                    | 
|Net investment income                                      |  | $                  | 1.37        |   |                                                    | $ | 1.14       |                    | 
|Net realized and unrealized gain (loss) on investments     |  |                    | (0.01       | ) |                                                    |   | (0.13      | )                  | 
|Net increase in net assets resulting from operations       |  |                    | 1.36        |   |                                                    |   | 1.01       |                    | 
|Distributions from net investment income                   |  | $                  | (1.34       | ) |                                                    | $ | (1.30      | )                  | 
|                                                           |  |                    |             |   |                                                    |   |            |                    | 
|Balance sheet data:                                        |  |                    |             |   |                                                    |   |            |                    | 
|Total assets                                               |  | $                  | 105,629,206 |   |                                                    | $ | 78,534,264 |                    | 
|Net assets                                                 |  | $                  | 55,969,870  |   |                                                    | $ | 36,855,107 |                    | 
|                                                           |  |                    |             |   |                                                    |   |            |                    | 
|Other data:                                                |  |                    |             |   |                                                    |   |            |                    | 
|Total return based on net asset value                      |  |                    | 6.89        | % |                                                    |   | 5.07       | %                  | 
|Number of portfolio company investments at period end      |  |                    | 18          |   |                                                    |   | 23         |                    | 
|Total portfolio investments for the period                 |  | $                  | 82,541,296  |   |                                                    | $ | 61,194,099 |                    | 
|Proceeds from sales and prepayments of investments         |  | $                  | 70,610,873  |   |                                                    | $ | 45,332,922 |                    | 



The data should be read in conjunction
with our consolidated financial statements and related notes thereto and “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations” included elsewhere in this annual report on Form 10-K.



ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Forward Looking Statements



This report contains forward
looking statements that involve substantial risks and uncertainties. These forward looking statements are not historical facts,
but rather are based on current expectations, estimates and projections about us, our prospective portfolio investments, our industry,
our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,”
“believes,” “seeks,” “estimates,” “would,” “should,” “targets,”
“projects,” and variations of these words and similar expressions are intended to identify forward looking statements.
These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which
are beyond our control and are difficult to predict, that could cause actual results to differ materially from those expressed
or forecasted in the forward looking statements including, without limitation:



| | ● | The effect of an economic downturn on our portfolio companies’ ability to continue to operate, which could lead to the
loss of some or all of our investments in such portfolio companies;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a contraction of available credit, which could impair our lending and investment activities;
| | - | --------------------------------------------------------------------------------------------



| | ● | interest rate volatility, which could adversely affect our results, particularly if we elect to use leverage as part of our
investment strategy;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | our future operating results;
| | - | -----------------------------





42







| | ● | our business prospects and the prospects of our portfolio companies;
| | - | --------------------------------------------------------------------



| | ● | our contractual arrangements and relationships with third parties;
| | - | ------------------------------------------------------------------



| | ● | the ability of our portfolio companies to achieve their objectives;
| | - | -------------------------------------------------------------------



| | ● | competition with other entities for investment opportunities;
| | - | -------------------------------------------------------------



| | ● | the speculative and illiquid nature of our investments;
| | - | -------------------------------------------------------



| | ● | the use of borrowed money to finance a portion of our investments;
| | - | ------------------------------------------------------------------



| | ● | the adequacy of our financing sources and working capital;
| | - | ----------------------------------------------------------



| | ● | the costs associated with being a public entity;
| | - | ------------------------------------------------



| | ● | the loss of key personnel;
| | - | --------------------------



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



| | ● | the ability of our Adviser to locate suitable investments for us and to monitor and administer our investments;
| | - | ---------------------------------------------------------------------------------------------------------------



| | ● | our ability to attract and retain highly talented professionals that can provide services to our Adviser and Administrator;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | ● | our ability to qualify and maintain our qualification as a RIC under Subchapter M of the Code and as a BDC; and
| | - | ---------------------------------------------------------------------------------------------------------------



| | ● | the effect of legal, tax and regulatory changes.
| | - | ------------------------------------------------



Although we believe that the
assumptions on which these forward looking statements are based are reasonable, some of those assumptions are based on the work
of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward looking statements based on
those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or
forward looking statement in this report should not be regarded as a representation by us that our plans and objectives will be
achieved. You should not place undue reliance on these forward looking statements, which apply only as of the date of this report.
We do not undertake any obligation to update or revise any forward looking statements, or any other information contained herein,
except as required by applicable law. The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, or the
Exchange Act, which preclude civil liability for certain forward looking statements are not applicable to us since we are a BDC
regulated under the Investment Company Act of 1940 (the “1940 Act”).



The information contained in
this section should be read in conjunction with “Item 8. Financial Statements and Supplemental Data”.



Overview



The Company is a specialty finance company
formed as a Maryland corporation on March 20, 2017. We are an externally managed, non-diversified closed-end investment company
that has elected to be regulated as a business development company (“BDC”) under the 1940 Act, and has elected to be
treated for tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code
of 1986, as amended (the “Code”).



Flat Rock Global, LLC (our “Adviser”
or “Flat Rock Global”), a Delaware limited liability company, acts as our investment adviser. Flat Rock Global is registered
as an investment adviser under the Advisers Act. Flat Rock Global is controlled by Robert K. Grunewald, our Chairman and Chief
Executive Officer. Mr. Grunewald has over 25 years of experience in BDCs, middle market finance, private equity and investment
banking. Flat Rock Global manages our day-to-day operations and provides investment advisory and management services to us.



Our investment objective is
the preservation of capital while generating current income from our debt investments and seeking to maximize our
portfolio’s total return. We intend to achieve this objective by investing in a portfolio composed primarily of debt
investments in senior secured loans of U.S. middle-market companies, which we refer to as Senior Loans. While our primary
investment focus is to make loans to, and selected equity investments in, U.S. middle-market companies, we may also make
opportunistic investments in larger or smaller companies or in vehicles that provide exposure to Senior Loans. We intend to
achieve our investment objective by (i) accessing the established loan origination channels developed by our management team,
(ii) selecting investments within our core middle-market focus, (iii) partnering with experienced private equity firms, or
sponsors, in many cases with whom our management team has invested alongside in the past, (iv) implementing disciplined
underwriting standards and (v) drawing upon the aggregate experience and resources of our management team. We expect that
most of our Senior Loans will be made to borrowers with EBITDA of between $5 million and $75 million annually.



We plan to hold many of our investments
to maturity or repayment, but will sell our investments earlier if a sale or recapitalization of a portfolio company takes place,
or if we determine a sale of one or more of our investments is in our best interest. Once we raise significant capital in this
or any future offering, we will seek to create a diverse portfolio of Senior Loans by investing approximately $10 to $25 million
of capital, on average, in the securities of middle-market companies. Prior to raising significant capital, we intend to make smaller
investments in Senior Loans.





43







Additionally, we may from time
to time hold or invest in equity securities and other debt or equity securities generally arising from a restructuring of Senior
Loan positions previously held by us. Flat Rock Global will also periodically evaluate all investments that are not Senior Loans
to determine whether we should dispose of assets that are not Senior Loans. We utilize leverage to enhance stockholder returns,
and believe that, when properly financed and hedged, our investment strategy can produce attractive risk-adjusted returns.



Characteristics of and Risks
Related to Investments in Private Companies



A core component of our strategy
is to invest in the corporate debt of privately held companies. Investments in private companies pose certain incremental risks
as compared to investments in public companies. First, private companies have reduced access to the capital markets, resulting
in diminished capital resources and ability to withstand financial distress. Second, the investments themselves may often be illiquid.
As such, we may have difficulty exiting an investment promptly or at a desired price prior to maturity or outside of a normal amortization
schedule. In addition, less public information generally exists about private companies. Finally, these companies may often not
have third-party debt ratings or audited financial statements. We must therefore rely on the ability of Flat Rock Global to obtain
adequate information through its due diligence efforts to evaluate the creditworthiness of and risks involved in investing in these
companies. These companies and their financial information will also generally not be subject to the Sarbanes-Oxley Act and other
rules that govern public companies that are designed to protect investors.



Operating and Regulatory
Structure



Our
investment activities are managed by Flat Rock Global and supervised by our board of directors (the “Board”), a majority
of whom are independent of us and Flat Rock Global. Under the Investment Advisory Agreement, we pay Flat Rock Global a quarterly
management fee based on our average gross assets as well as incentive fees based on our performance.



We
have entered into an Administration Agreement with Flat Rock Global to serve as our administrator. Pursuant to the Administration
Agreement, Flat Rock Global provides us with services such as accounting, financial reporting, legal and compliance support and
investor relations support, necessary for us to operate or has engaged a third-party firm to perform some or all of these functions.



Revenues



We generate revenue in the form
of dividends or interest payable on the debt securities that we hold and capital gains, if any, received prior to the maturity
of any debt instruments or other equity interests that we acquire in portfolio companies. In addition, we may generate revenue
in the form of commitment, origination, structuring or diligence fees, monitoring fees and possibly consulting and performance-based
fees. Any such fees will be generated in connection with our investments and recognized as earned.



Expenses



Our primary operating expenses
are the payment of advisory fees and other expenses under the Investment Advisory Agreement. The investment advisory fees compensate
Flat Rock Global for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.



We bear all other expenses of our operations
and transactions, including (without limitation) fees and expenses relating to:



| | ● | the cost of calculating our net asset value, including the cost of any third-party valuation services;                             
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                    
| | ● | the cost of effecting sales and repurchase of shares of our common stock and other securities;                                     
| |   |                                                                                                                                    
| | ● | management and incentive fees payable to Flat Rock Global pursuant to the Investment Advisory Agreement;                           
| |   |                                                                                                                                    
| | ● | custodial fees;                                                                                                                    
| |   |                                                                                                                                    
| | ● | federal, state and local taxes;                                                                                                    
| |   |                                                                                                                                    
| | ● | interest payable on debt, if any, incurred to finance our investments;                                                             
| |   |                                                                                                                                    
| | ● | independent directors’ fees and expenses;                                                                                          
| |   |                                                                                                                                    
| | ● | brokerage commissions for our investments;                                                                                         
| |   |                                                                                                                                    
| | ● | costs of proxy statements, stockholders’ reports and notices;                                                                      
| |   |                                                                                                                                    
| | ● | fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums;                       
| |   |                                                                                                                                    
| | ● | costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws;
| |   |                                                                                                                                    
| | ● | direct costs such as printing, mailing, long distance telephone and staff costs; and                                               
| |   |                                                                                                                                    
| | ● | fees and expenses associated with independent accountants, independent and internal audit and outside legal counsel.               





44









Our Adviser is responsible for payment of
any and all organization and offering expenses incurred on our behalf in connection with our private offering of shares. Specifically,
our Adviser will not seek or be entitled to reimbursement from us for any of the following offering expenses.



| | ● | transfer agent fees;                                                                                                    
| | - | ------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                         
| | ● | fees and expenses associated with marketing efforts (including attendance at investment conferences and similar events);
| |   |                                                                                                                         
| | ● | federal and state registration fees; and                                                                                
| |   |                                                                                                                         
| | ● | all other offering expenses incurred by Flat Rock Global in performing its obligations;                                 



Beginning on May 3, 2017, commencement of
our operations, Flat Rock Global agreed to voluntarily reimburse us for certain operating expenses, including audit, fund accounting,
fund administration, insurance, legal, valuation, and other expenses. The specific amount of expenses reimbursed by Flat Rock Global,
if any, was determined at the end of each quarter. For the year ended December 31, 2019, there was no expense reimbursement for
audit, fund accounting, fund administration, insurance, legal, valuation and other fees. For the year ended December 31, 2018,
reimbursements totaled $101,939. To the extent reimbursements may be needed in the future, there can be no assurance that Flat
Rock Global will provide any such reimbursements. In addition, there are no recoupment agreements in place, and the aforementioned
expenses will not be recouped by Flat Rock Global.



Portfolio and Investment
Activity



As of December 31, 2019, our
weighted average total yield of debt and income producing securities at fair value was 9.25%, and our weighted average total yield
of debt and income producing securities at amortized cost was 9.33%.



As of December 31, 2019, we had
20 debt and private fund investments in 18 portfolio companies with an aggregate fair value of approximately $82.5 million.



Our investment activity for the
years ended December 31, 2019 and 2018 is presented below (information presented herein is at cost unless otherwise indicated).





|                                                                          |  | For the Years Ended |            
|------------------------------------------------------------------------- |  | ------------------- | -----------
|                                                                          |  | December 31, 2019   |            
|                                                                          |  |                     |            
|New investments:                                                          |  |                     |            
|Gross investments                                                         |  | $                   | 91,795,783 
|Less: sold investments                                                    |  |                     | (70,894,330
|Total new investments                                                     |  |                     | 20,901,453 
|                                                                          |  |                     |            
|Principal amount of investments funded:                                   |  |                     |            
|First-lien senior secured debt investments                                |  | $                   | 80,439,409 
|Collateralized Loan Obligation                                            |  |                     | 4,000,000  
|Private fund                                                              |  |                     | 7,556,374  
|Total principal amount of investments funded                              |  |                     | 91,995,783 
|                                                                          |  |                     |            
|Principal amount of investments sold:                                     |  |                     |            
|First-lien senior secured debt investments                                |  |                     | 70,252,423 
|Private fund                                                              |  |                     | 641,907    
|Total principal amount of investments sold or repaid                      |  |                     | 70,894,330 
|                                                                          |  |                     |            
|Number of new investment commitments                                      |  |                     | 2          
|Average new investment commitment amount                                  |  | $                   | 4,500,000  
|Weighted average maturity for new investment commitments                  |  |                     | 5.45 years 
|Percentage of new debt investment commitments at floating rates           |  |                     | 100        
|Percentage of new debt investment commitments at fixed rates              |  |                     | 0          
|Weighted average interest rate of new investment commitments              |  |                     | 9.60       
|Weighted average spread LIBOR of new floating rate investment commitments |  |                     | 7.73       
|Weighted average interest rate on investment sold or paid down            |  |                     | 10.33      





45







As of December 31, 2019 and December
31, 2018, our investments consisted of the following:



|                                            |  | December 31, 2019 |             |  | December 31, 2018 |  
|------------------------------------------- |  | ----------------- | ----------- |  | ----------------- | -
|                                            |  |                   |             |  | Fair              |  
|Investments:                                |  | Cost              |             |  | Value             |  
|First-lien senior secured debt              |  | $                 | 72,134,565  |  |                   | $
|Private Fund                                |  |                   | 6,914,467   |  |                   |  
|Collateralized Loan Obligation              |  |                   | 3,800,904   |  |                   |  
|U.S. Government Securities                  |  |                   | 18,996,667  |  |                   |  
|                                            |  |                   | 101,846,603 |  |                   |  
|Forward foreign currency exchange contracts |  |                   | -           |  |                   |  
|Total Investments                           |  | $                 | 101,846,603 |  |                   | $



The table below describes investments
by industry composition based on fair value as of December 31, 2019 and December 31, 2018:



|                                             |  | December 31,
 2019 |       |   | December 31,
 2018 | 
|-------------------------------------------- |  | ------------------ | ----- | - | ------------------ | 
|                                             |  |                    |       |   |                    | 
|U.S. Government Securities                   |  |                    | 18.8  | % |                    | 
|Insurance Services                           |  |                    | 18.6  | % |                    | 
|Direct Selling                               |  |                    | 12.1  | % |                    | 
|Investment Vehicle                           |  |                    | 10.9  | % |                    | 
|IT Implementation                            |  |                    | 5.3   | % |                    | 
|Retail                                       |  |                    | 4.8   | % |                    | 
|Banking, Finance, Insurance & Real Estate    |  |                    | 4.8   | % |                    | 
|Media: Advertising, Printing, and Publishing |  |                    | 4.8   | % |                    | 
|Consumer Goods                               |  |                    | 4.6   | % |                    | 
|Construction & Building                      |  |                    | 3.8   | % |                    | 
|Healthcare Services                          |  |                    | 3.2   | % |                    | 
|Transportation: Cargo                        |  |                    | 2.5   | % |                    | 
|Wholesale                                    |  |                    | 1.9   | % |                    | 
|Aerospace & Defense                          |  |                    | 1.7   | % |                    | 
|Business Services                            |  |                    | 1.4   | % |                    | 
|Chemicals & Allied Products                  |  |                    | 0.8   | % |                    | 
|Healthcare IT                                |  |                    | 0.0   | % |                    | 
|Computers & Electronics                      |  |                    | 0.0   | % |                    | 
|Transportation                               |  |                    | 0.0   | % |                    | 
|High Tech Industries                         |  |                    | 0.0   | % |                    | 
|Broadcasting & Subscription                  |  |                    | 0.0   | % |                    | 
|Capital Equipment                            |  |                    | 0.0   | % |                    | 
|Insurance Brokerage                          |  |                    | 0.0   | % |                    | 
|Forward Foreign Currency Exchange Contracts  |  |                    | 0.0   | % |                    | 
|Total                                        |  |                    | 100.0 | % |                    | 



The table below describes investments
by geographic composition based on fair value as of December 31, 2019 and December 31, 2018:



|                           |  | December 31, 
2019 |       |   | December 31, 
2018 | 
|-------------------------- |  | ------------------ | ----- | - | ------------------ | 
|                           |  |                    |       |   |                    | 
|United States:             |  |                    |       |   |                    | 
|Northeast                  |  |                    | 42.1  | % |                    | 
|U.S. Government Securities |  |                    | 18.8  | % |                    | 
|West                       |  |                    | 17.1  | % |                    | 
|Midwest                    |  |                    | 10.0  | % |                    | 
|Southeast                  |  |                    | 7.0   | % |                    | 
|South                      |  |                    | 0.8   | % |                    | 
|Switzerland                |  |                    | 2.5   | % |                    | 
|Luxembourg                 |  |                    | 1.7   | % |                    | 
|Canada                     |  |                    | 0.0   | % |                    | 
|Total                      |  |                    | 100.0 | % |                    | 







46







The
table below shows the weighted average yields and interest rate of our debt investments at fair value as of December 31, 2019
and December 31, 2018:



|                                                                           |  | December
    31,
    2019 |      |   | December
    31,
    2018 | 
|-------------------------------------------------------------------------- |  | ------------------------- | ---- | - | ------------------------- | 
|Weighted average total yield
    of debt and income producing securities   |  |                           | 9.25 | % |                           | 
|Weighted average interest rate of debt
    and income producing securities |  |                           | 8.87 | % |                           | 
|Weighted average spread over LIBOR of
    all floating rate investments    |  |                           | 7.03 | % |                           | 



Our Adviser monitors our portfolio companies
on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective
business plans and to assess the appropriate course of action with respect to each portfolio company. Our Adviser has a number
of methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:



| | ● | Assessment of success of the portfolio company in adhering to its business plan and compliance with covenants;                                                                          
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                         
| | ● | Periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;
| |   |                                                                                                                                                                                         
| | ● | Comparisons to other companies in the portfolio company’s industry; and                                                                                                                 
| |   |                                                                                                                                                                                         
| | ● | Review of monthly or quarterly financial statements and financial projections for portfolio companies.                                                                                  



As part of the monitoring process, our Adviser
employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools,
our Adviser rates the credit risk of all investments on a scale of 1 to 5. This system is intended primarily to reflect the underlying
risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of
origination or acquisition), although it may also take into account the performance of the portfolio company’s business,
the collateral coverage of the investment and other relevant factors. The rating system is as follows:



|Investment |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Rating     |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|1          |  | Investments
    with a rating of 1 involve the least amount of risk to our initial cost basis. The borrower is performing above expectations,
    and the trends and risk factors for this investment since origination or acquisition are generally favorable;                                                                                                                                                                                                  
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2          |  | Investments
    rated 2 involve an acceptable level of risk that is similar to the risk at the time of origination or acquisition. The borrower
    is generally performing as expected and the risk factors are neutral to favorable. All investments or acquired investments
    in new portfolio companies are initially assessed a rate of 2;                                                                                                                
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3          |  | Investments
    rated 3 involve a borrower performing below expectations and indicates that the loan’s risk has increased somewhat since
    origination or acquisition;                                                                                                                                                                                                                                                                                         
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4          |  | Investments
    rated 4 involve a borrower performing materially below expectations and indicates that the loan’s risk has increased
    materially since origination or acquisition. In addition to the borrower being generally out of compliance with debt covenants,
    loan payments may be past due (but generally not more than 120 days past due); and                                                                                                  
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|5          |  | Investments
    rated 5 involve a borrower performing substantially below expectations and indicates that the loan’s risk has increased
    substantially since origination or acquisition. Most or all of the debt covenants are out of compliance and payments are substantially
    delinquent. Loans rated 5 are not anticipated to be repaid in full and we will reduce the fair market value of the loan to
    the amount we anticipate will be recovered.



Our Adviser rates the investments in our
portfolio at least quarterly and it is possible that the rating of a portfolio investment may be reduced or increased over time.
For investments rated 3, 4 or 5, our Adviser enhances its level of scrutiny over the monitoring of such portfolio company. The
following table presents the ratings of our portfolio investments at December 31, 2019 and December 31, 2018.



|                  |  | December 31, 2019 |             |  | December 31, 2018 | 
|----------------- |  | ----------------- | ----------- |  | ----------------- | 
|                  |  | Investments at    |             |  | of Total          | 
|Investment Rating |  | Fair Value        |             |  | Portfolio         | 
|1                 |  | $                 | 18,803,521  |  |                   | 
|2                 |  |                   | 74,717,496  |  |                   | 
|3                 |  |                   | 8,016,707   |  |                   | 
|                  |  |                   |             |  |                   | 
|Total             |  | $                 | 101,537,724 |  |                   | 





47









Results of Operations



The following table represents the operating
results for the for the years ended December 31, 2019 and 2018, and the period from May 3, 2017 (commencement of operations) through
December 31, 2017:



|                                                         |  | For the Years Ended |           |   | For the Period May 3, 
2017 (commencement of operations) through |  
|-------------------------------------------------------- |  | ------------------- | --------- | - | ---------------------------------------------------------------- | -
|                                                         |  | December 31,
2019   |           |   | December 31,
2018                                                |  
|Total investment income                                  |  | $                   | 6,695,755 |   |                                                                  | $
|Less: Net expenses                                       |  |                     | 3,476,602 |   |                                                                  |  
|Net investment income                                    |  |                     | 3,219,153 |   |                                                                  |  
|Net realized gains (losses) on investments               |  |                     | (59,546   | ) |                                                                  |  
|Net change in unrealized gains (losses) on investments   |  |                     | 10,041    |   |                                                                  |  
|Net increase in net assets resulting from
    operations |  | $                   | 3,169,648 |   |                                                                  | $





Investment Income



Investment income for the years
ended December 31, 2019 and 2018, and the period from May 3, 2017 (commencement of operations) through December 31, 2017:



|                          |  | For the Years Ended |           |  | For the Period May 3, 
2017 (commencement of operations) through |  
|------------------------- |  | ------------------- | --------- |  | ---------------------------------------------------------------- | -
|                          |  | December 31,
2019   |           |  | December 31,
2018                                                |  
|Dividend income           |  | $                   | 121,483   |  |                                                                  | $
|Interest from investments |  |                     | 6,497,864 |  |                                                                  |  
|Other income              |  |                     | 76,408    |  |                                                                  |  
|Total investment income   |  | $                   | 6,695,755 |  |                                                                  | $



For the years ended December 31, 2019
and 2018



Total investment income increased to approximately $7.0 million for 2019 compared approximately $2.5 million for 2018. The
increase was driven by increased total assets of approximately $105.6 million at December 31, 2019 from approximately $78.5
million at December 31, 2018 and increased yield on the portfolio of 9.60% on December 31, 2019 compared to 8.65% in on December
31, 2018.



For the years ended December 31, 2018
and 2017



Total investment income increased to approximately $2.5 million for 2018 compared to approximately $0.4 million for 2017.
The increase was driven by increased total assets of approximately $78.5 million at December 31, 2018 from approximately $31.1
million at December 31, 2017 and increased yield on the portfolio of 8.65% on December 31, 2018 compared to 7.99% in on December
31, 2017.



48







Expenses



Operating expenses for the years
ended December 31, 2019 and 2018, and the period from May 3, 2017 (commencement of operations) through December 31, 2017 was as
follows:



|                                     |  | For the Years Ended |           |   | For the Period May 3,
 2017 (commencement of operations) through |  
|------------------------------------ |  | ------------------- | --------- | - | ---------------------------------------------------------------- | -
|                                     |  | December 31,
2019   |           |   | December 31,
2018                                                |  
|Management fees                      |  | $                   | 1,376,674 |   |                                                                  | $
|Incentive fees                       |  |                     | 546,204   |   |                                                                  |  
|Other operating expenses             |  |                     | 664,582   |   |                                                                  |  
|Interest and debt financing expenses |  |                     | 1,562,512 |   |                                                                  |  
|Management fee waiver                |  |                     | (265,221  | ) |                                                                  |  
|Incentive fee waiver                 |  |                     | (408,149  | ) |                                                                  |  
|Expense reimbursement                |  |                     | -         |   |                                                                  |  
|Net expenses                         |  | $                   | 3,476,602 |   |                                                                  | $



Net expenses for the year ended
December 31, 2019 were $3,476,602, which consisted of $1,376,674 in management fees, $259,986 in professional fees, $546,204 in
incentive fees, $1,562,512 in interest and debt financing expenses, and $404,596 in general and administrative expenses, offset
by $265,221 in management fee waiver and $408,149 in incentive fee waiver from the Adviser.



Net expenses for the year ended
December 31, 2018 were $969,807, which consisted of $625,782 in management fees, $452,407 in professional fees, $180,601 in interest
and debt financing expenses, and $438,738 in general and administrative expenses, offset by $625,782 in management fee waiver and
$101,939 in expense reimbursement from the Adviser.



Net expenses for the period from
May 3, 2017 (commencement of operations) through December 31, 2017 were $84,220, which consisted of $233,070 in management fees,
$407,946 in professional fees, $12,368 in incentive fees, $16,017 in interest expenses, and $180,290 in general and administrative
expenses, offset by $245,438 in management fee waiver and $520,033 in expense reimbursement from the Adviser.



The increase in total expenses
year to year was primarily related to managing a larger portfolio as well as an increase in interest and debt financing expenses
incurred as a result of larger draws from the credit facility.





49









In order to meet the diversification
tests required to qualify as a RIC, the Company, on December 31, 2019, acquired $19,000,000 in face value of short-term U.S. Treasury
Bills. This transaction had the effect of increasing management fees payable to the Adviser, all of which were waived by the Adviser.



In order to meet the diversification
tests required to qualify as a RIC, the Company, on December 31, 2018, acquired $15,000,000 in face value of short-term U.S. Treasury
Bills. This transaction had the effect of increasing management fees payable to the Adviser, all of which were waived by the Adviser.



In order to meet the diversification
tests required to qualify as a RIC, the Company, on December 29, 2017, acquired $8,000,000 in face value of short-term U.S. Treasury
Bills. This transaction had the effect of increasing management fees payable to the Adviser, all of which were waived by the Adviser.



Net Change in Unrealized
Gains (Losses) on Investments



We fair value our portfolio
investments quarterly and any changes in fair value are recorded as unrealized gains or losses. During the years ended
December 31, 2019 and 2018, and the period from May 3, 2017 (commencement of operations) through December 31, 2017, net
change in unrealized gains (losses) on our investment portfolio were comprised of the following:



|                                                       |  | For the Years Ended |        |  | For the Period May 3,
2017 (commencement of operations) through |  
|------------------------------------------------------ |  | ------------------- | ------ |  | --------------------------------------------------------------- | -
|                                                       |  | December 31,
2019   |        |  | December 31,
2018                                               |  
|Net change in unrealized gains (losses) on investments |  | $                   | 10,041 |  |                                                                 | $



The unrealized losses as of
December 31, 2019 were largely attributable to four loans. The four loans, Mills Fleet Farms, Ceva Logistics Finance B.V.,
Isagenix International, and NM Z Parent Inc. generated unrealized losses of approximately $734,000, offsetting unrealized gains and resulting in a net change in unrealized gains (losses) on investments of $10,041.



The unrealized losses as of
December 31, 2018 were largely attributable to four loans. The four loans, Logibec Inc., Envision Healthcare, Isagenix
International, and NM Z Parent Inc. generated unrealized losses of approximately $515,000.



The unrealized gains as of December
31, 2017 were largely attributable to our investment in Logibec Inc., which generated unrealized gains of approximately $300,000.



Financial Condition, Liquidity
and Capital Resources



We generate cash primarily from
the net proceeds generated from our private offering and from cash flows from fees, interest and dividends earned from our investments
and principal repayments and proceeds from sales of our investments. In addition, we borrow funds to make investments to the extent
we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for
debt financing presents attractively priced debt financing opportunities, or if our board of directors determines that leveraging
our portfolio would be in our best interests and the best interests of our stockholders. We do not currently anticipate issuing
any preferred stock.



Our primary use of funds is investments
in Senior Loans, payments of our expenses and distributions to holders of our common stock. We commenced our private offering
of shares on June 29, 2017. As of December 31, 2019, we sold 2,832,840 shares of common stock for gross proceeds of approximately
$56.5 million. As of December 31, 2019, we had cash and cash equivalents of approximately $3.4 million. As of December 31, 2019,
we had approximately $30.0 million outstanding under the Credit Facility.



As a BDC, we generally are required
to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of our borrowings and
any preferred stock that we may issue in the future, of at least 150%. If this ratio declines below 150%, we cannot incur additional
debt and could be required to sell a portion of our investments to repay some debt when it is disadvantageous to do so.



Flat Rock Global has agreed to
pay all of our organization and offering expenses in connection with our private offering, including, but not limited to, expenses
incurred in connection with legal, accounting and printing expenses, expenses associated with stockholder relations, transfer agent
fees, fulfillment costs, and expenses associated with advertising and sales literature prepared by us. We will not reimburse Flat
Rock Global for such organization and offering expenses. Therefore, these fees and expenses will not reduce the net proceeds available
to us from the sale of our shares in our private offering.





50







Capital Contributions



During the year ended December
31, 2019, we issued and sold 1,021,942 shares of our common stock at an aggregate purchase price of approximately $20.2 million.



Financing Arrangements



On October 12, 2018, we, through
FRC Funding I, LLC (“FRC Funding” and together with the Company, the “Borrowers”) entered into a Loan and
Security Agreement (the “Loan Agreement”) with certain financial institutions as lenders (“Lenders”), State
Bank and Trust Company as the administrative agent (“State Bank”) and Alostar Capital Finance (“Alostar”),
as Lead Arranger and Bookrunner, pursuant to which Lenders agreed to provide us with a revolving line of credit. The Loan Agreement
was effective as of October 12, 2018. On December 10, 2018, the Loan Agreement was amended to add Hitachi Capital America Corp.
to the definition of “Lenders” and to amend the definition of “Revolver Commitments” to increase the aggregate
amount available to the Borrowers under the Revolver Commitments to $30 million, beginning with the effective date of the Amendment.
On May 31, 2019, the Loan Agreement was amended to revise the definitions for “Asset Coverage Ratio” and “Service
Termination Event,” and increase the aggregate amount available to Borrowers under the Revolver Commitments to $35 million,
beginning with the effective date of the amendment.



As amended, the Loan Agreement
provides for $35.0 million in Revolver Commitments (as defined in the Loan Agreement) to be available to the Company to draw down
and repay for three years, subject to borrowing base eligibility. The Loan Agreement matures at the earliest of (a) the date that
is four (4) years from closing, (b) the date on which FRC Funding terminates the Revolver Commitments pursuant to the Loan Agreement;
or (c) the date on which the Revolver Commitments are terminated pursuant to certain events of default under the Loan Agreement.
The Scheduled Revolving Period End Date (as defined in the Loan Agreement) is three years from closing.



The Loan Agreement accrues interest
at the Daily LIBOR Rate (as defined in the Loan Agreement), plus a 2.88% margin, and principal is repayable in full at maturity.
Interest is generally required to be paid monthly in arrears. The Loan Agreement requires the payment of an unused line fee of
between 0.50% and 1.0%, commencing on the date that is two months from closing, based on the amount by which the Revolver Commitments
exceed the average daily balance of the Revolver Loans (as defined in the Loan Agreement) during any month. Such fee is payable
monthly in arrears. The Loan Agreement has an advance rate against FRC Funding’s Eligible Portfolio Investment (as defined
in the Loan Agreement). The advance rate, as to any Eligible Portfolio Investment, is 75.0% when the Company’s asset coverage
ratio is equal or greater than 200.0% or 70.0% when the Company’s asset coverage ratio is less than 200.0%, subject to certain
eligibility requirements (as defined in the Loan Agreement).



Pursuant to the terms of the
Loan Agreement, the Borrowers grant to State Bank for the benefit of State Bank, Lenders, Alostar and its affiliates, a security
interest and a lien in substantially all of FRC Funding’s assets. The Loan Agreement contains certain affirmative and negative
covenants, including a minimum company asset coverage ratio, a minimum fixed charge ratio, and a minimum company tangible net worth.
Under the Loan Agreement, the Borrowers are required to make certain customary representations and warranties, and are required
to comply with various covenants, reporting requirements and other requirements that are customary for similar credit facilities.
The obligations under the Loan Agreement may be accelerated upon the occurrence of an event of default under the Loan Agreement
or in the event of a change of control of the Company or FRC Funding.



Distribution Policy



Subject to our Board’s
discretion and applicable legal restrictions, we intend to authorize and declare monthly distributions that will be paid on a monthly
basis. Our initial monthly distribution was declared by our Board on August 25, 2017, and was paid to our stockholders on September
6, 2017. We calculate each stockholder’s specific distribution amount for the month based on a distribution amount per share
per day of our common stock, which accrues daily for each stockholder from the date we accept their subscription for shares of
our common stock. From time to time, we may also pay interim distributions, including capital gains distributions, at the discretion
of our Board. Each year a statement on Internal Revenue Service Form 1099-DIV (or successor form) identifying the source of the
distribution (i.e., paid from ordinary income, paid from net capital gain on the sale of securities, or a return of paid-in capital
surplus which is a nontaxable distribution) will be mailed to our stockholders. Our distributions may exceed our earnings, especially
during the period before we have substantially invested the proceeds from this offering. As a result, a portion of the distributions
we make may represent a return of capital for tax purposes.



We elected to be treated for
U.S. federal income tax purposes, and intend to maintain our qualification, as a RIC under Subchapter M of the Code. To maintain
RIC tax treatment, we must, among other things, distribute at least 90.0% of our ordinary income and net short-term capital gain
in excess of net long-term capital loss, if any. In order to avoid certain excise taxes imposed on RICs, we currently intend to
distribute, or be deemed to distribute, during each calendar year an amount at least equal to the sum of (1) 98.0% of our ordinary
income for the calendar year, (2) 98.2% of our capital gain in excess of capital loss for the one-year period ending on October
31 of such calendar year and (3) any ordinary income and net capital gain for preceding years that were not distributed during
such years and on which we paid no U.S. federal income tax.





51







The following table reflects
the cash distributions per share that we declared and paid on our common stock during the years ended December 31, 2019 and 2018,
and the period from May 3, 2017 (commencement of operations) through December 31, 2017:



The following table reflects the distrubtions declared on shares
during the fiscal year ended December 31, 2019:



|            |  |            |  |       |       |  |         |           | Total         |  
|----------- |  | ---------- |  | ----- | ----- |  | ------- | --------- | ------------- | -
|Declaration |  | Record     |  | Per   |       |  | Payment |           | Distributions |  
|Date        |  | Date       |  | Share |       |  | Date    |           | Declared      |  
|11/13/2018  |  | 1/26/2019  |  | $     | 0.108 |  |         | 2/6/2019  |               | $
|11/13/2018  |  | 2/26/2019  |  |       | 0.108 |  |         | 3/6/2019  |               |  
|2/28/2019   |  | 3/26/2019  |  |       | 0.108 |  |         | 4/8/2019  |               |  
|3/28/2019   |  | 4/26/2019  |  |       | 0.111 |  |         | 5/6/2019  |               |  
|3/28/2019   |  | 5/26/2019  |  |       | 0.111 |  |         | 6/6/2019  |               |  
|5/14/2019   |  | 6/26/2019  |  |       | 0.111 |  |         | 7/6/2019  |               |  
|5/14/2019   |  | 7/26/2019  |  |       | 0.114 |  |         | 8/6/2019  |               |  
|5/14/2019   |  | 8/26/2019  |  |       | 0.114 |  |         | 9/6/2019  |               |  
|8/12/2019   |  | 9/26/2019  |  |       | 0.114 |  |         | 10/7/2019 |               |  
|8/12/2019   |  | 10/24/2019 |  |       | 0.114 |  |         | 11/6/2019 |               |  
|8/12/2019   |  | 11/25/2019 |  |       | 0.114 |  |         | 12/6/2019 |               |  
|11/12/2019  |  | 12/23/2019 |  |       | 0.114 |  |         | 1/6/2020  | (1)           |  
|            |  |            |  |       |       |  |         |           |               | $



(1) As of December 31, 2019, this distribution had not been
paid, which consisted of a cash dividend of $257,614 and dividends reinvested of $52,845. See balance payable on the Consolidated
Statements of Assets and Liabilities, as well as disclosure of payment noted in Note 11 to the consolidated financial statements.



The following table reflects the distrubtions declared on shares
during the fiscal year ended December 31, 2018:



|            |  |            |  |       |       |  |         |           | Total         |  
|----------- |  | ---------- |  | ----- | ----- |  | ------- | --------- | ------------- | -
|Declaration |  | Record     |  | Per   |       |  | Payment |           | Distributions |  
|Date        |  | Date       |  | Share |       |  | Date    |           | Declared      |  
|1/26/2018   |  | 1/26/2018  |  | $     | 0.108 |  |         | 2/6/2018  |               | $
|2/26/2018   |  | 2/26/2018  |  |       | 0.108 |  |         | 3/6/2018  |               |  
|3/26/2018   |  | 3/26/2018  |  |       | 0.108 |  |         | 4/6/2018  |               |  
|4/26/2018   |  | 4/26/2018  |  |       | 0.108 |  |         | 5/6/2018  |               |  
|5/26/2018   |  | 5/26/2018  |  |       | 0.108 |  |         | 6/6/2018  |               |  
|6/26/2018   |  | 6/26/2018  |  |       | 0.108 |  |         | 7/6/2018  |               |  
|7/26/2018   |  | 7/26/2018  |  |       | 0.108 |  |         | 8/6/2018  |               |  
|8/26/2018   |  | 8/26/2018  |  |       | 0.108 |  |         | 9/6/2018  |               |  
|9/26/2018   |  | 9/26/2018  |  |       | 0.108 |  |         | 10/6/2018 |               |  
|10/26/2018  |  | 10/26/2018 |  |       | 0.108 |  |         | 11/6/2018 |               |  
|11/26/2018  |  | 11/26/2018 |  |       | 0.108 |  |         | 12/6/2018 |               |  
|11/13/2018  |  | 12/26/2018 |  |       | 0.108 |  |         | 1/7/2019  | (1)           |  
|            |  |            |  |       |       |  |         |           |               | $



(1) As of December 31, 2018, this distribution had not been
paid, which consisted of a cash dividend of $200,145 and no dividends reinvested. See balance payable on the Consolidated Statements
of Assets and Liabilities, as well as disclosure of payment noted in Note 11 to the consolidated financial statements.





52







The following table reflects the distrubtions declared on shares
during the fiscal year ended December 31, 2017:



|            |  |            |  |       |       |  |         |           | Total         |  
|----------- |  | ---------- |  | ----- | ----- |  | ------- | --------- | ------------- | -
|Declaration |  | Record     |  | Per   |       |  | Payment |           | Distributions |  
|Date        |  | Date       |  | Share |       |  | Date    |           | Declared      |  
|8/25/2017   |  | 8/25/2017  |  | $     | 0.108 |  |         | 9/6/2017  |               | $
|9/26/2017   |  | 9/26/2017  |  |       | 0.108 |  |         | 10/6/2017 |               |  
|10/26/2017  |  | 10/26/2017 |  |       | 0.108 |  |         | 11/6/2017 |               |  
|11/26/2017  |  | 11/26/2017 |  |       | 0.108 |  |         | 12/6/2017 |               |  
|12/26/2017  |  | 12/26/2017 |  |       | 0.108 |  |         | 1/6/2018  | (1)           |  
|            |  |            |  |       |       |  |         |           |               | $



(1) As of December 31, 2017, this distribution had not been
paid, which consisted of a cash dividend of $110,964 and no dividends reinvested. See balance payable on the Consolidated Statements
of Assets and Liabilities, as well as disclosure of payment noted in Note 11 to the consolidated financial statements.



Distribution Reinvestment Plan



The Company adopted a distribution
reinvestment plan (the “DRIP”), effective as of, and first applied to the reinvestment of cash distributions paid on
or after May 1, 2019. Under the DRIP, cash distributions paid to participating stockholders are reinvested in shares at a price
equal to the net asset value per share of the shares as of such date. New stockholders of the Company on or after May 1, 2019 were
automatically enrolled in the DRIP unless they affirmatively declined participation in the DRIP. Existing stockholders of the Company
prior to May 1, 2019 were given the opportunity to participate in the DRIP. The Company uses newly-issued shares to implement the
DRIP. The number of newly-issued shares to be issued to a participating stockholder is determined by dividing the total dollar
amount of the distribution payable to such stockholder by the net asset value per share of the applicable class. There are no commissions
or other sales charges on shares issued to a participating stockholder.



The following table reflects
the common stock issued pursuant to the DRIP during the period May 1, 2019 to December 31, 2019:



|Declaration |  | Record     |  | Payment     |  |        |       
|----------- |  | ---------- |  | ----------- |  | ------ | ------
|Date        |  | Date       |  | Date        |  | Shares |       
|3/28/2019   |  | 5/26/2019  |  | 6/6/2019    |  |        | 2,208 
|5/14/2019   |  | 6/26/2019  |  | 7/6/2019    |  |        | 2,220 
|5/14/2019   |  | 7/26/2019  |  | 8/6/2019    |  |        | 2,503 
|5/14/2019   |  | 8/26/2019  |  | 9/6/2019    |  |        | 2,605 
|8/12/2019   |  | 9/26/2019  |  | 10/7/2019   |  |        | 2,605 
|8/12/2019   |  | 10/24/2019 |  | 11/6/2019   |  |        | 2,642 
|8/12/2019   |  | 11/25/2019 |  | 12/6/2019   |  |        | 2,660 
|11/12/2019  |  | 12/23/2019 |  | 1/6/2020(1) |  |        | 2,676 
|            |  |            |  |             |  |        | 20,119



(1) As of December 31, 2019,
this distribution had not been paid, which consisted of a reinvestment of 2,676 shares at a value of $52,845. See balance payable
on the Consolidated Statements of Assets and Liabilities, as well as disclosure of payment noted in Note 11 to the consolidated
financial statements.



Repurchases of Shares



As a result of the Company’s compliance with the requirements
set forth in the SBCAA, the asset coverage ratio test applicable to the Company was decreased from 200% to 150%, effective May
30, 2019. In order to comply with the requirement that the Company extend, within twelve months from May 30, 2018, to each of
the Company’s stockholders as of May 30, 2018, the opportunity to sell the securities held by that stockholder as of that
date, the Company filed four tender offers on June 27, 2018, August 7, 2018, September 12, 2018, and October 24, 2018, each representing
25% of the total issued and outstanding shares as of May 30, 2018, July 31, 2018, September 11, 2018 and October 23, 2018, respectively.
The tender offer filed on June 27, 2018 resulted in the Company purchasing all 20,000 shares validly tendered and not withdrawn
at a price equal to $20.03 per share for an aggregate purchase price of approximately $400,600. The remaining tender offers did
not result in the Company purchasing any Shares pursuant to the offers.



Following the closing of the final tender offer above in order
to comply with the provisions of the SBCAA, the Company commenced its share repurchase program, whereby it intends to offer to
repurchase up to 5% if its issued and outstanding shares on a quarterly basis through registered tender offers. The table below
shows the effects of the quarterly repurchase offers made by the Company during the year ended December 31, 2019:



|Repurchase Offer Date |  | Repurchase Date  |  | Number of Shares Repurchased |        |  | Percentage of Shares Repurchased |  |     | Repurchase Price Per Share |  |   | Aggregate Consideration for
    Repurchased Shares | 
|--------------------- |  | ---------------- |  | ---------------------------- | ------ |  | -------------------------------- |  | --- | -------------------------- |  | - | -------------------------------------------------- | 
|April 1, 2019         |  | April 29, 2019   |  |                              | 18,750 |  |                                  |  | 100 | %                          |  | $ | 19.80                                              | 
|July 16, 2019         |  | August 14, 2019  |  |                              | 19,996 |  |                                  |  | 100 | %                          |  | $ | 19.77                                              | 
|October 1, 2019       |  | November 6, 2019 |  |                              | 37,911 |  |                                  |  | 100 | %                          |  | $ | 19.77                                              | 
|TOTAL                 |  |                  |  |                              | 76,657 |  |                                  |  |     |                            |  |   |                                                    | 





53







Critical
Accounting Policies



Our financial statements are
prepared in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods. Critical accounting policies are those that require the application of management’s most difficult, subjective,
or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and
that may change in subsequent periods. The preparation of these financial statements will require management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment,
financial markets and any other parameters used in determining such estimates could cause actual results to differ. In addition
to the discussion below, we have described our critical accounting policies in the notes to our financial statements.



Valuation of Portfolio Investments



Our Board has established procedures
for the valuation of our investment portfolio. These procedures are detailed below. Investments for which market quotations are
readily available are valued at such market quotations.



Most of our investments will
not be traded on a national securities exchange and we will not have the benefit of market quotations or other pricing data from
such an exchange. Certain of our investments will have the benefit of third-party bid-ask quotations. With respect to investments
for which pricing data is not readily available or when such pricing data is deemed not to represent fair value, our Board has
approved a multi-step valuation process each quarter, as described below:



| | 1. | each portfolio company or investment will be valued by Flat Rock Global, potentially with information received from one or
more independent valuation firms engaged by the Company;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | an independent valuation firm will conduct independent valuations and make an independent assessment of the value of each investment
on a rotating basis so that each investment is valued at least twice annually;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | the valuation committee of our Board will review and discuss the preliminary valuation prepared by Flat Rock Global and that
of the independent valuation firm; and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | our Board will discuss the valuations and determine the fair value of each investment in our portfolio in good faith based
on the input of Flat Rock Global, an independent valuation firm and the valuation committee.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Investments will be 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 value amount (discounted)
calculated based on an appropriate discount rate. The measurement is based on the net present 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 fair
value pricing our investments include, as relevant: 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, M&A comparables, the principal market and enterprise values, among other factors.





54







The Company
applies Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 820, Fair Value Measurements
and Disclosures, as amended, which defines fair value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles and expands disclosures about fair value measurements.



ASC Topic 820 clarifies that
fair value is defined as the price that the Company would receive upon selling an investment or paying to transfer a liability
to a market participant in the principal or most advantageous market for the investment. The transaction to sell the asset or transfer
the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that
holds the asset or owes the liability. ASC Topic 820 provides a consistent definition of fair value that focuses on exit price
and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. In addition, ASC
Topic 820 provides a framework for measuring fair value and establishes a three-level hierarchy for fair value measurements based
upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as discussed in Note 5 to
the Notes to Consolidated Financial Statements.



Net Realized Gains or Losses
and Net Change in Unrealized Appreciation or Depreciation



We measure realized gains or
losses by the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without
regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment
penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the
reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are
realized.



Contractual Obligations



Payments for investment advisory
services under the Investment Advisory Agreement are equal to (a) a management fee calculated at an annual rate of 1.375% of the
value of our average gross assets as of the end of the two most recently completed quarters and (b) an incentive fee based on our
performance. We have entered into an administration agreement with Flat Rock Global to serve as our Administrator. Pursuant to
the administration agreement, Flat Rock Global provides us with services such as accounting, financial reporting, legal and compliance
support and investor relations support, necessary for us to operate or has engaged a third-party firm to perform some or all of
these functions.



A summary of our significant
contractual payment obligations related to the repayment of our outstanding indebtedness at December 31, 2019 is as follows:



|                              |  | Payments Due by Period |           
|----------------------------- |  | ---------------------- | ----------
|                              |  | Total                  |           
|Credit Facility, net          |  | $                      | 29,796,235
|Total contractual obligations |  | $                      | 29,796,235



Off-Balance Sheet Arrangements



Other than contractual commitments
and other legal contingencies incurred in the normal course of our business, we do not have any off- balance sheet financings or
liabilities.



ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We are subject to financial market
risks, including changes in interest rates.



Valuation Risk



Most of our investments will
not be traded on a national securities exchange, and we will not have the benefit of market quotations or other pricing data from
such an exchange. Certain of our investments will have the benefit of third-party bid-ask quotations. With respect to investments
for which pricing data is not readily available or when such pricing data is deemed not to represent fair value, our Board has
approved a multi-step valuation process each quarter. There is no single standard for determining fair value in good faith. As
a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment
while employing a consistently applied valuation process for the types of investments we make.



Interest Rate Risk



Interest rate sensitivity refers
to the change in earnings that may result from changes in the level of interest rates. We intend to fund portions of our investments
with borrowings, and at such time, our net investment income will be affected by the difference between the rate at which we invest
and the rate at which we borrow. Accordingly, we cannot assure you that a significant change in market interest rates will not
have a material adverse effect on our net investment income.



Pursuant to the terms of our
credit facility with State Bank and Trust Company, borrowings are at a floating rate based on LIBOR. As a result, we are subject
to risks relating to changes in market interest rates.



As of December 31, 2019, all
of the debt investments in our portfolio were at floating rates.





55







ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Index to Consolidated Financial Statements



|                                                                                                                                                                                    | Page
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                                                                    |     
|Report
    of Independent Registered Public Accounting Firm as of and for the year ended December 31, 2019                                                                          | F-2 
|Report of the Predecessor Independent Registered Public Accounting Firm as of and for the year ended December 31, 2018 and the period ended December 31, 2017.                      | F-3 
|Consolidated Statements of Assets and Liabilities as of December 31, 2019 and 2018                                                                                                  | F-4 
|Consolidated Statements of Operations for the Years ended December 31, 2019 and 2018 and for the Period of May 3, 2017 (commencement of operations) to December 31, 2017            | F-5 
|Consolidated Statements of Changes in Net Assets for the Years ended December 31, 2019 and 2018 and for the Period of May 3, 2017 (commencement of operations) to December 31, 2017 | F-6 
|Consolidated Statements of Cash Flows for the Years ended December 31, 2019 and 2018 and for the Period of May 3, 2017 (commencement of operations) to December 31, 2017            | F-7 
|Consolidated Schedules of Investments as of December 31, 2019 and 2018                                                                                                              | F-8 
|Notes to Consolidated Financial Statements                                                                                                                                          | F-12









F-1







Report
of Independent Registered Public Accounting Firm



To the Shareholders and Board of Directors
of

Flat Rock Capital Corp.



Opinion on the Consolidated Financial Statements



We have audited the accompanying consolidated
statement of assets and liabilities, including the consolidated schedule of investments, of Flat Rock Capital Corp. (the “Company”)
as of December 31, 2019, and the related consolidated statements of operations, cash flows, and changes in net assets for the year
then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2019, and the results of its operations, cash flows, and changes in its net assets for the year then ended,
in conformity with accounting principles generally accepted in the United States of America.



Flat Rock Capital Corp.’s consolidated
financial statements for the year or period ended December 31, 2018 and 2017 were audited by other auditors, whose reports dated
March 13, 2019 and March 15, 2018 expressed unqualified opinions on those consolidated financial statements.



Basis for Opinion



These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.



Our audit included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31,
2019, by correspondence with the custodian, brokers and underlying investment managers, or by other appropriate auditing procedures
where replies from brokers or counterparties were not received. Our audit also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audit provides a reasonable basis for our opinion.



We have served as the auditor of one or more
of the investment companies advised by Flat Rock Global, LLC since 2018.





COHEN & COMPANY, LTD.

Cleveland, Ohio

March 18, 2020







F-2









| | KPMG LLP
        345 Park Avenue
        New York, NY 10154-0102
| | ----------------------------------------------------------------



Report
of Independent Registered Public Accounting Firm



To the Stockholders and Board of Directors

Flat Rock Capital Corp.:



Opinion on the Consolidated Financial Statements



We have audited the accompanying
consolidated statements of assets and liabilities of Flat Rock Capital Corp. and subsidiary (the Company), including the consolidated
schedule of investments, as of December 31, 2018 and 2017, the related consolidated statements of operations, changes in net assets,
and cash flows for the year ended December 31, 2018, and for the period from May 3, 2017 (commencement of operations) through December
31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and
the results of its operations and its cash flows for the year ended December 31, 2018 and for the period from May 3, 2017 (commencement
of operations) through December 31, 2017, in conformity with U.S. generally accepted accounting principles.



Basis for Opinion



These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such
opinion.



Our audits included performing
procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial statements. Our procedures included confirmation of investments owned
as of December 31, 2018, and 2017, by correspondence with third party agents. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/ KPMG LLP



We have served as the Company’s auditor
since 2017.



New York, New York

March 13, 2019



KPMG LLP is a Delaware limited
liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity.



F-3







Flat Rock Capital
Corp.

Consolidated Statements of Assets and
Liabilities



|                                                                                                                                                                                  |  | December 31, 2019 |             |   | December 31, 2018 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | -
|Assets:                                                                                                                                                                           |  |                   |             |   |                   |  
|Non-controlled/non-affiliated investments, at fair value (cost of $101,846,603
    and $76,887,587, respectively)                                                                 |  | $                 | 101,537,724 |   |                   | $
|Cash and cash equivalents                                                                                                                                                         |  |                   | 3,359,446   |   |                   |  
|Foreign currency, at fair value (cost of $47,289)                                                                                                                                 |  |                   | 47,289      |   |                   |  
|Unrealized appreciation on open forward foreign currency exchange contracts                                                                                                       |  |                   | -           |   |                   |  
|Receivables:                                                                                                                                                                      |  |                   |             |   |                   |  
|Receivable for sales of investments                                                                                                                                               |  |                   | 1,771       |   |                   |  
|Receivable for paydowns of investments                                                                                                                                            |  |                   | 81,410      |   |                   |  
|Due from investment adviser                                                                                                                                                       |  |                   | 196,728     |   |                   |  
|Dividend receivable                                                                                                                                                               |  |                   | 64,524      |   |                   |  
|Interest receivable                                                                                                                                                               |  |                   | 265,314     |   |                   |  
|Prepaid expenses and other assets                                                                                                                                                 |  |                   | 75,000      |   |                   |  
|Total Assets                                                                                                                                                                      |  | $                 | 105,629,206 |   |                   | $
|                                                                                                                                                                                  |  |                   |             |   |                   |  
|Liabilities:                                                                                                                                                                      |  |                   |             |   |                   |  
|Credit facility, net (see note 6)                                                                                                                                                 |  | $                 | 29,796,235  |   |                   | $
|Payables:                                                                                                                                                                         |  |                   |             |   |                   |  
|Payable for investments purchased                                                                                                                                                 |  |                   | 18,996,667  |   |                   |  
|Distributions payable                                                                                                                                                             |  |                   | 257,614     |   |                   |  
|Management fee payable                                                                                                                                                            |  |                   | 368,452     |   |                   |  
|Incentive fee payable                                                                                                                                                             |  |                   | 155,491     |   |                   |  
|Accrued other general and administrative expenses                                                                                                                                 |  |                   | 84,877      |   |                   |  
|Total Liabilities                                                                                                                                                                 |  | $                 | 49,659,336  |   |                   | $
|                                                                                                                                                                                  |  |                   |             |   |                   |  
|Commitments and contingencies (Note 8)                                                                                                                                            |  |                   |             |   |                   |  
|                                                                                                                                                                                  |  |                   |             |   |                   |  
|Net Assets:                                                                                                                                                                       |  |                   |             |   |                   |  
|Preferred shares, $0.001 par value; 25,000,000 shares authorized; 0 issued
    and outstanding as of December 31, 2019, and December 31, 2018                                     |  | $                 | -           |   |                   | $
|Common Shares, $0.001 par value; 125,000,000 shares authorized; 2,832,840
    as of December 31, 2019, and 1,867,420 as of December 31, 2018 issued and outstanding, respectively |  |                   | 2,833       |   |                   |  
|Additional paid-in capital                                                                                                                                                        |  |                   | 56,459,407  |   |                   |  
|Total distributable earnings (accumulated deficit)                                                                                                                                |  |                   | (492,370    | ) |                   |  
|Total Net Assets                                                                                                                                                                  |  | $                 | 55,969,870  |   |                   | $
|Total Liabilities and Net Assets                                                                                                                                                  |  | $                 | 105,629,206 |   |                   | $
|Net Asset Value Per Common Share                                                                                                                                                  |  | $                 | 19.76       |   |                   | $



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



F-4







Flat Rock Capital Corp.

Consolidated Statements of Operations



|                                                                                            |  | For
    the Years Ended |           |   | For
    the Period May 3, 
    2017 (commencement of operations) through |  
|------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ------------------------------------------------------------------------ | -
|                                                                                            |  | December 31,
    2019   |           |   | December 31,
    2018                                                    |  
|Income:                                                                                     |  |                         |           |   |                                                                          |  
|Investment income from non-controlled, non-affiliated investments:                          |  |                         |           |   |                                                                          |  
|Interest
    income                                                                         |  | $                       | 6,497,864 |   |                                                                          | $
|Dividend income                                                                             |  |                         | 121,483   |   |                                                                          |  
|Other
    income                                                                            |  |                         | 76,408    |   |                                                                          |  
|Total
    investment income from non-controlled, non-affiliated investments                 |  |                         | 6,695,755 |   |                                                                          |  
|Total Investment
    Income                                                                 |  |                         | 6,695,755 |   |                                                                          |  
|                                                                                            |  |                         |           |   |                                                                          |  
|Expenses:                                                                                   |  |                         |           |   |                                                                          |  
|Interest expense                                                                            |  |                         | 1,562,512 |   |                                                                          |  
|Management fees                                                                             |  |                         | 1,376,674 |   |                                                                          |  
|Incentive fees                                                                              |  |                         | 546,204   |   |                                                                          |  
|Professional fees                                                                           |  |                         | 259,986   |   |                                                                          |  
|Other
    general and administrative expenses                                               |  |                         | 404,596   |   |                                                                          |  
|Total Expenses                                                                              |  |                         | 4,149,972 |   |                                                                          |  
|Less: Management
    fee waiver (Note 3)                                                    |  |                         | (265,221  | ) |                                                                          |  
|Less: Incentive
    fee waiver (Note 3)                                                     |  |                         | (408,149  | ) |                                                                          |  
|Less:
    Expense reimbursement (Note 3)                                                    |  |                         | -         |   |                                                                          |  
|Net
    expenses                                                                            |  |                         | 3,476,602 |   |                                                                          |  
|Net
    Investment Income (Loss)                                                            |  |                         | 3,219,153 |   |                                                                          |  
|                                                                                            |  |                         |           |   |                                                                          |  
|Realized
    and unrealized gains (losses) on investments and foreign currency transactions |  |                         |           |   |                                                                          |  
|Net realized gains
    (losses):                                                            |  |                         |           |   |                                                                          |  
|Non-controlled,
    non-affiliated investments                                              |  |                         | (282,272  | ) |                                                                          |  
|Foreign currency
    transactions                                                           |  |                         | 47,937    |   |                                                                          |  
|Forward
    foreign currency exchange contracts (Note 2)                                    |  |                         | 174,789   |   |                                                                          |  
|Total
    net realized gains (losses)                                                       |  |                         | (59,546   | ) |                                                                          |  
|Net change in unrealized
    gains (losses):                                                |  |                         |           |   |                                                                          |  
|Non-controlled,
    non-affiliated investments                                              |  |                         | 242,482   |   |                                                                          |  
|Foreign currency
    translation                                                            |  |                         | 137,371   |   |                                                                          |  
|Forward
    foreign currency exchange contracts (Note 2)                                    |  |                         | (369,812  | ) |                                                                          |  
|Total
    net change in unrealized gains (losses)                                           |  |                         | 10,041    |   |                                                                          |  
|Total
    realized and unrealized gains (losses)                                            |  |                         | (49,505   | ) |                                                                          |  
|                                                                                            |  |                         |           |   |                                                                          |  
|Net
    Increase (Decrease) in Net Assets Resulting from Operations                         |  | $                       | 3,169,648 |   |                                                                          | $
|                                                                                            |  |                         |           |   |                                                                          |  
|Per Common
    Share Data:                                                                  |  |                         |           |   |                                                                          |  
|Basic
    and diluted net investment income per common share                                |  | $                       | 1.37      |   |                                                                          | $
|Basic
    and diluted net increase in net assets resulting from operations                  |  | $                       | 1.35      |   |                                                                          | $
|Weighted
    Average Common Shares Outstanding - Basic and Diluted                          |  |                         | 2,350,674 |   |                                                                          |  



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



F-5







Flat Rock Capital Corp.

Consolidated Statements of Changes in
Net Assets



|                                                                                                                                   |  | For the Years Ended |            |   | For the Period May 3,
 2017
    (commencement of operations) through |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ---------- | - | -------------------------------------------------------------------- | -
|                                                                                                                                   |  | December 31,
 2019  |            |   | December 31, 
2018                                                   |  
|Increase (Decrease) in Net Assets Resulting from Operations:                                                                       |  |                     |            |   |                                                                      |  
|Net investment income (loss)                                                                                                       |  | $                   | 3,219,153  |   |                                                                      | $
|Net realized gains (losses) on investments and foreign currency transactions                                                       |  |                     | (59,546    | ) |                                                                      |  
|Net change in unrealized gains (losses) on investments, foreign currency
    translations, and foreign currency exchange contracts |  |                     | 10,041     |   |                                                                      |  
|Net Increase (Decrease) in Net
    Assets Resulting from Operations                                                                |  |                     | 3,169,648  |   |                                                                      |  
|                                                                                                                                   |  |                     |            |   |                                                                      |  
|Decrease in Net Assets Resulting from Stockholder Distributions                                                                    |  |                     |            |   |                                                                      |  
|Dividends and distributions to stockholders                                                                                        |  |                     | (3,147,725 | ) |                                                                      |  
|Return of capital                                                                                                                  |  |                     | -          |   |                                                                      |  
|Net Decrease in Net Assets Resulting
    from Stockholder Distributions                                                            |  |                     | (3,147,725 | ) |                                                                      |  
|                                                                                                                                   |  |                     |            |   |                                                                      |  
|Increase in Net Assets Resulting from Capital Share Transactions                                                                   |  |                     |            |   |                                                                      |  
|Issuance of common shares                                                                                                          |  |                     | 20,210,850 |   |                                                                      |  
|Reinvestment of stockholder distributions                                                                                          |  |                     | 398,064    |   |                                                                      |  
|Repurchase of common shares                                                                                                        |  |                     | (1,516,074 | ) |                                                                      |  
|Net Increase in Net Assets Resulting
    from Capital Share Transactions                                                           |  |                     | 19,092,840 |   |                                                                      |  
|Total Increase (Decrease) in Net Assets                                                                                            |  |                     | 19,114,763 |   |                                                                      |  
|Net Assets, Beginning of Period                                                                                                    |  |                     | 36,855,107 |   |                                                                      |  
|Net Assets, End of Period                                                                                                          |  | $                   | 55,969,870 |   |                                                                      | $
|Net Asset Value per Common Share                                                                                                   |  | $                   | 19.76      |   |                                                                      | $
|Common shares outstanding at the
    end of the period                                                                             |  |                     | 2,832,840  |   |                                                                      |  



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



F-6







Flat Rock Capital Corp.

Consolidated Statements of Cash Flows



|                                                                                                                                    |  | For the Year Ended |              |   | For
    the Period May 3,
 2017 (commencement of operations) through |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------------ | - | -------------------------------------------------------------------- | -
|                                                                                                                                    |  | December 31, 2019  |              |   | December 31, 2018                                                    |  
|                                                                                                                                    |  |                    |              |   |                                                                      |  
|Cash Flows from Operating Activities:                                                                                               |  |                    |              |   |                                                                      |  
|Net increase in net assets resulting from operations                                                                                |  | $                  | 3,169,648    |   |                                                                      | $
|Adjustments to reconcile net increase in net assets resulting from operations to net cash used
    in operating activities:         |  |                    |              |   |                                                                      |  
|Net realized (gains)/losses on investments                                                                                          |  |                    | 282,272      |   |                                                                      |  
|Net change in unrealized (gains)/losses on investments                                                                              |  |                    | (242,482     | ) |                                                                      |  
|Net change in unrealized (gains)/losses on foreign currency
    translations                                                        |  |                    | (137,371     | ) |                                                                      |  
|Net change in unrealized (appreciation)/depreciation on forward foreign
    currency contracts                                      |  |                    | 369,812      |   |                                                                      |  
|Net accretion of discount on investments                                                                                            |  |                    | (60,003      | ) |                                                                      |  
|Purchases
    of investments                                                                                                        |  |                    | (170,787,006 | ) |                                                                      |  
|Proceeds from sale of investments                                                                                                   |  |                    | 145,605,721  |   |                                                                      |  
|Amortization of debt issuance costs                                                                                                 |  |                    | 125,899      |   |                                                                      |  
|Changes in operating assets and liabilities:                                                                                        |  |                    |              |   |                                                                      |  
|Receivable for sales of investments                                                                                                 |  |                    | (1,771       | ) |                                                                      |  
|Interest and dividend receivable                                                                                                    |  |                    | 91,217       |   |                                                                      |  
|Due from investment adviser                                                                                                         |  |                    | (106,879     | ) |                                                                      |  
|Receivable for paydowns of investments                                                                                              |  |                    | 124,421      |   |                                                                      |  
|Prepaid expenses and other assets                                                                                                   |  |                    | -            |   |                                                                      |  
|Payable for investments purchased                                                                                                   |  |                    | 1,050,060    |   |                                                                      |  
|Management fees payable                                                                                                             |  |                    | 368,452      |   |                                                                      |  
|Incentive fee payable                                                                                                               |  |                    | 155,491      |   |                                                                      |  
|Accrued other general and administrative expenses                                                                                   |  |                    | (220,151     | ) |                                                                      |  
|Net cash used in operating activities                                                                                               |  |                    | (20,212,670  | ) |                                                                      |  
|Cash Flows from Financing Activities:                                                                                               |  |                    |              |   |                                                                      |  
|Borrowings on credit facility                                                                                                       |  |                    | 45,094,606   |   |                                                                      |  
|Payments on credit facility                                                                                                         |  |                    | (38,611,271  | ) |                                                                      |  
|Payments of debt issuance costs                                                                                                     |  |                    | (46,010      | ) |                                                                      |  
|Distributions paid in cash                                                                                                          |  |                    | (2,692,213   | ) |                                                                      |  
|Proceeds from issuance of common shares, net of change
    in subscriptions receivable of $0, $100,000 and ($100,000), respectively |  |                    | 20,210,850   |   |                                                                      |  
|Repurchase of common shares                                                                                                         |  |                    | (1,516,074   | ) |                                                                      |  
|Net cash provided by financing activities                                                                                           |  |                    | 22,439,887   |   |                                                                      |  
|Net increase (decrease) in cash and cash equivalents                                                                                |  |                    | 2,227,217    |   |                                                                      |  
|Cash, cash equivalents and foreign currency, beginning of period                                                                    |  |                    | 1,179,518    |   |                                                                      |  
|Cash, cash equivalents and foreign currency, end of period(1)                                                                       |  | $                  | 3,406,735    |   |                                                                      | $
|                                                                                                                                    |  |                    |              |   |                                                                      |  
|Supplemental and Non-Cash Information:                                                                                              |  |                    |              |   |                                                                      |  
|Interest paid during the period                                                                                                     |  | $                  | 1,562,512    |   |                                                                      | $
|Distributions declared during the period                                                                                            |  | $                  | 3,147,725    |   |                                                                      | $
|Reinvestment of distributions during the period                                                                                     |  | $                  | 398,064      |   |                                                                      | $
|Distributions payable                                                                                                               |  | $                  | 257,614      |   |                                                                      | $







| | (1) | Agrees to the total of “Cash and cash equivalents” and
“Foreign currency, at fair value” balances on the Consolidated Statements of Assets and Liabilities
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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



F-7









Flat Rock Capital Corp.

Consolidated Schedule of Investments

As of December 31, 2019



|Portfolio
    Company(3)                          |  | Industry                                     |  | Interest Rate                |  | Acquisition Date |  | Maturity Date |            |  | Principal / Par |   |            | Cost |  |   | Fair Value |  |  | Percentage
    of Net Assets |           
|------------------------------------------------- |  | -------------------------------------------- |  | ---------------------------- |  | ---------------- |  | ------------- | ---------- |  | --------------- | - | ---------- | ---- |  | - | ---------- |  |  | ---------------------------- | ----------
|Debt Investments                                  |  |                                              |  |                              |  |                  |  |               |            |  |                 |   |            |      |  |   |            |  |  |                              |           
|First Lien Senior Secured
    Debt(1)(2)(6)       |  |                                              |  |                              |  |                  |  |               |            |  |                 |   |            |      |  |   |            |  |  |                              |           
|AIS HoldCo, LLC(7)                                |  | Insurance Services                           |  | 3M USD L + 5.00% (0% Floor)  |  | 8/15/2018        |  |               | 8/15/2025  |  |                 | $ | 3,875,000  |      |  | $ | 3,875,108  |  |  | $                            | 3,826,562 
|ALM Media, Inc.(7)                                |  | Media: Advertising, Printing, and Publishing |  | 3M USD L + 6.50% (1% Floor)  |  | 11/25/2019       |  |               | 11/25/2024 |  |                 |   | 5,000,000  |      |  |   | 4,901,774  |  |  |                              | 4,900,000 
|Broder Bros Co.(7)                                |  | Wholesale                                    |  | 3M USD L + 8.50% (1% Floor)  |  | 1/30/2019        |  |               | 12/2/2022  |  |                 |   | 1,932,883  |      |  |   | 1,932,883  |  |  |                              | 1,932,883 
|Diversified Risk Holdings, LLC                    |  | Insurance Services                           |  | 3M USD L + 8.00% (1% Floor)  |  | 11/28/2018       |  |               | 11/28/2023 |  |                 |   | 14,850,000 |      |  |   | 14,732,774 |  |  |                              | 14,998,500
|Ceva Logistics Finance B.V.(4)                    |  | Transportation: Cargo                        |  | 3M USD L + 5.00% (0% Floor)  |  | 2/22/2019        |  |               | 8/4/2025   |  |                 |   | 2,985,000  |      |  |   | 2,901,303  |  |  |                              | 2,567,100 
|Coastal Construction Products(7)(10)              |  | Construction & Building                      |  | 1M USD L + 5.125% (1% Floor) |  | 10/10/2018       |  |               | 9/4/2024   |  |                 |   | 3,805,021  |      |  |   | 3,765,373  |  |  |                              | 3,805,021 
|Hill International, Inc.(7)                       |  | Business Services                            |  | 3M USD L + 5.75% (1% Floor)  |  | 9/22/2017        |  |               | 6/21/2023  |  |                 |   | 1,462,500  |      |  |   | 1,457,080  |  |  |                              | 1,458,844 
|Isagenix International LLC(7)                     |  | Direct Selling                               |  | 3M USD L + 5.75% (1% Floor)  |  | 4/26/2018        |  |               | 4/25/2025  |  |                 |   | 2,773,173  |      |  |   | 2,781,173  |  |  |                              | 2,495,856 
|Mills Fleet Farms(7)                              |  | Consumer Goods                               |  | 1M USD L + 6.25% (1% Floor)  |  | 10/19/2018       |  |               | 10/19/2024 |  |                 |   | 4,961,078  |      |  |   | 4,876,119  |  |  |                              | 4,712,031 
|NM Z Parent Inc (Zep Inc)(7)                      |  | Chemicals & Allied Products                  |  | 3M USD L+ 4.00% (1% Floor)   |  | 5/25/2018        |  |               | 8/9/2024   |  |                 |   | 982,412    |      |  |   | 972,631    |  |  |                              | 808,820   
|North Pole US
 LLC(4)                             |  | Aerospace & Defense                          |  | 3M USD L + 7.00% (0% Floor)  |  | 4/10/2019        |  |               | 4/10/2025  |  |                 |   | 1,925,000  |      |  |   | 1,745,737  |  |  |                              | 1,750,595 
|Potpourri Group, 
Inc.(7)                         |  | Direct Selling                               |  | 1M USD L + 8.25% (0% Floor)  |  | 7/3/2019         |  |               | 7/3/2024   |  |                 |   | 9,875,000  |      |  |   | 9,781,895  |  |  |                              | 9,776,250 
|Specialist Resources Global Inc.(5)(7)(10)        |  | Healthcare Services                          |  | 1M USD L + 5.25% (0% Floor)  |  | 9/23/2019        |  |               | 9/23/2025  |  |                 |   | 3,325,000  |      |  |   | 3,284,781  |  |  |                              | 3,283,417 
|Spencer Gifts LLC(7)                              |  | Retail                                       |  | 1M USD L + 6.00% (0% Floor)  |  | 6/14/2019        |  |               | 6/12/2026  |  |                 |   | 4,987,500  |      |  |   | 4,891,998  |  |  |                              | 4,889,246 
|ThreeBridge Solutions Delayed Draw(7)             |  | IT Implementation                            |  | -                            |  | 12/1/2017        |  |               | 12/1/2022  |  |                 |   | 277,916    |      |  |   | 275,688    |  |  |                              | 277,916   
|ThreeBridge Solutions Term Loan(5)(7)             |  | IT Implementation                            |  | 1M USD L+ 9.00% (1% Floor)   |  | 12/1/2017        |  |               | 12/1/2022  |  |                 |   | 5,164,392  |      |  |   | 5,115,830  |  |  |                              | 5,164,392 
|World Insurance Associates, LLC Delayed Draw(7)   |  | Banking, Finance, Insurance & Real Estate    |  | 1M USD L + 4.50% (1% Floor)  |  | 7/2/2018         |  |               | 7/18/2024  |  |                 |   | 1,692,930  |      |  |   | 1,686,765  |  |  |                              | 1,676,001 
|World Insurance Associates, LLC(7)                |  | Banking, Finance, Insurance & Real Estate    |  | 1M USD L + 4.50% (1% Floor)  |  | 7/2/2018         |  |               | 7/18/2024  |  |                 |   | 3,182,458  |      |  |   | 3,155,653  |  |  |                              | 3,150,633 
|Total First Lien Senior Secured Debt              |  |                                              |  |                              |  |                  |  |               |            |  |                 | $ | 73,057,263 |      |  | $ | 72,134,565 |  |  | $                            | 71,474,067
|                                                  |  |                                              |  |                              |  |                  |  |               |            |  |                 |   |            |      |  |   |            |  |  |                              |           
|Collateralized Loan Obligations(1)(6)             |  |                                              |  |                              |  |                  |  |               |            |  |                 |   |            |      |  |   |            |  |  |                              |           
|Churchill Middle Market CLO IV
 Ltd., Class E2(4) |  | Investment Vehicle                           |  | 3M USD L + 10.20% (0% Floor) |  | 12/12/2019       |  |               | 1/23/2032  |  |                 |   | 4,000,000  |      |  |   | 3,800,904  |  |  |                              | 4,060,800 
|Total Collateralized Loan Obligations             |  |                                              |  |                              |  |                  |  |               |            |  |                 |   | 4,000,000  |      |  |   | 3,800,904  |  |  |                              | 4,060,800 
|Total Debt Investments                            |  |                                              |  |                              |  |                  |  |               |            |  |                 | $ | 77,057,263 |      |  | $ | 75,935,469 |  |  | $                            | 75,534,867
|                                                  |  |                                              |  |                              |  |                  |  |               |            |  |                 |   |            |      |  |   |            |  |  |                              |           
|Private Fund Investments                          |  |                                              |  |                              |  |                  |  |               |            |  |                 |   |            |      |  |   |            |  |  |                              |           
|BCP Great Lakes Fund LP(4)(8)(9)                  |  | Investment Vehicle                           |  | -                            |  | 8/9/2019         |  |               | -          |  |                 |   |            |      |  |   | 6,914,467  |  |  |                              | 7,006,429 
|Total Private Fund Investments                    |  |                                              |  |                              |  |                  |  |               |            |  |                 |   |            |      |  | $ | 6,914,467  |  |  | $                            | 7,006,429 





F-8







Flat Rock Capital Corp.

Consolidated Schedule of Investments

As of December 31, 2019



|Security(3)                           |  | Yield to
    Maturity |      |   | Maturity Date |          | Acquisition Date |            | Number of Shares |            | Principal / Par |   |            | Amortized Cost(6) |  |   | Fair Value  |  |  | Percentage of Net Assets |            
|------------------------------------- |  | --------------------- | ---- | - | ------------- | -------- | ---------------- | ---------- | ---------------- | ---------- | --------------- | - | ---------- | ----------------- |  | - | ----------- |  |  | ------------------------ | -----------
|U.S. Government Securities(1)(6)      |  |                       |      |   |               |          |                  |            |                  |            |                 |   |            |                   |  |   |             |  |  |                          |            
|U.S. Treasury Bill(5)                 |  |                       | 1.05 | % |               | 1/7/2020 |                  | 12/31/2019 |                  | 19,000,000 |                 | $ | 19,000,000 |                   |  | $ | 18,996,667  |  |  | $                        | 18,996,428 
|Total U.S. Government Securities      |  |                       |      |   |               |          |                  |            |                  |            |                 |   | 19,000,000 |                   |  |   | 18,996,667  |  |  |                          | 18,996,428 
|                                      |  |                       |      |   |               |          |                  |            |                  |            |                 |   |            |                   |  |   |             |  |  |                          |            
|Total Investments                     |  |                       |      |   |               |          |                  |            |                  |            |                 | $ | 96,057,263 |                   |  | $ | 101,846,603 |  |  | $                        | 101,537,724
|Liabilities in Excess of Other Assets |  |                       |      |   |               |          |                  |            |                  |            |                 |   |            |                   |  |   |             |  |  |                          | (45,567,854
|Net assets                            |  |                       |      |   |               |          |                  |            |                  |            |                 |   |            |                   |  |   |             |  |  | $                        | 55,969,870 








(1) The amortized cost represents the original cost adjusted
for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.

(2) Loan contains a variable rate structure, subject to an
interest rate floor. Variable rate loans bear interest at a rate that may be determined by reference to either the London Interbank
Offered Rate (“LIBOR” or “L”) (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, and which reset
periodically based on the terms of the loan agreement. For each such loan, the Company has provided the interest rate in effect
on the date presented. As of December 31, 2019, the 1 month (1M), 2 month (2M), and 3 month (3M) USD LIBOR rates were 1.76%,
1.83%, and 1.91%, respectively.

(3) As of December 31, 2019, all investments are non-controlled,
non-affiliated investments. Non-controlled, non-affiliated investments are defined as investments in which the Company owns
less than 5% of the portfolio company’s outstanding voting securities and does not have the power to exercise control over
the management or policies of such portfolio company.

(4) Non-qualifying investment as defined by Section 55(a) of
the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying
assets represent at least 70% of the Company’s total assets. As of December 31, 2019, 14.6% of the Company’s total assets
were in non-qualifying investments.

(5) Investments or a portion of investments are unsettled as
of December 31, 2019.

(6) As of December 31, 2019, the tax cost of the Company’s
investments approximates their amortized cost.

(7) Security or portion thereof held within FRC Funding I,
LLC, a special purpose wholly-owned subsidiary of the Company, and is pledged as collateral supporting the amounts outstanding under a revolving credit facility (see Note 6 to the consolidated financial statements).

(8) Security exempt from registration under the Securities
Act of 1933 (the “Securities Act”), and may be deemed to be a “restricted security” under the
Securities Act. As of December 31, 2019, the aggregate fair value of restricted securities held by the Company was
$7,006,429 or 12.5% of net assets.

(9) The BCP Great Lakes Fund LP (the “Private
Fund”) is a limited partnership commitment, and has a three year reinvestment period expiring November 27, 2021, and is
subject to two (2) one year extensions thereof with the consent of BMO Harris Bank and BC Partners Advisors, L.P. The Private
Fund’s investment strategy is to invest in middle market sponsor backed uni-tranche term
loans. The reinvestment period is 3 years from the close date. The Private Fund does not permit withdrawal from the Private Fund or the withdrawal of any portion of the Company's capital
account until the termination of the Private Fund or as provided in the Private Fund's limited partnership agreement. Of the
$7,300,000 commitment to the Private Fund, $385,533 was unfunded as of December 31, 2019 (See Note 8 to the Consolidated Financial
Statements).

(10) The Company had unfunded loan commitments to the portfolio company as of December 31, 2019. See Note 8 to the Consolidated
Financial Statements.



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





F-9







Flat
Rock Capital Corp.

Consolidated
Schedule of Investments

As
of December 31, 2018



|                                                       |  |                                 |  |                                  |  | Acquisition |  | Maturity   |  | Principal
    / |            |  | Amortized  |   |            | Fair  |  | Percentage    |           
|------------------------------------------------------ |  | ------------------------------- |  | -------------------------------- |  | ----------- |  | ---------- |  | --------------- | ---------- |  | ---------- | - | ---------- | ----- |  | ------------- | ----------
|Company(3)                                             |  | Industry                        |  | Interest                         |  | Date        |  | Date       |  | Par             |            |  | Cost(1)(6) |   |            | Value |  | of Net Assets |           
|Debt
    Investments                                   |  |                                 |  |                                  |  |             |  |            |  |                 |            |  |            |   |            |       |  |               |           
|First
    Lien Senior Secured(2)                       |  |                                 |  |                                  |  |             |  |            |  |                 |            |  |            |   |            |       |  |               |           
|AIS
    HoldCo, LLC(5)                                 |  | Insurance
    Services          |  | 3M
    USD L + 5.00% (1% Floor)  |  | 8/15/2018   |  | 8/15/2025  |  | $               | 3,975,000  |  |            | $ | 3,975,330  |       |  | $             | 3,955,125 
|American
    Dental Partners, Inc.                     |  | Healthcare
    Services         |  | 3M
    USD L + 4.25% (1% Floor)  |  | 11/14/2018  |  | 8/30/2021  |  |                 | 1,000,000  |  |            |   | 997,564    |       |  |               | 985,000   
|Bomgar
    Corporation                                 |  | Computers
    & Electronics     |  | 3M
    USD L + 4.00% (1% Floor)  |  | 4/17/2018   |  | 4/17/2025  |  |                 | 2,736,250  |  |            |   | 2,744,413  |       |  |               | 2,619,959 
|Canngen
    Insurance Services, LLC                    |  | Insurance
    Services          |  | 3M
    USD L + 8.00% (1% Floor)  |  | 11/28/2018  |  | 11/28/2023 |  |                 | 15,000,000 |  |            |   | 14,854,433 |       |  |               | 14,850,000
|Coastal
    Construction Products                      |  | Construction
    & Building     |  | 2M
    USD L + 5.375% (1% Floor) |  | 10/10/2018  |  | 9/4/2024   |  |                 | 3,995,882  |  |            |   | 3,947,388  |       |  |               | 3,955,924 
|Deliver
    Buyer, Inc.                                |  | Capital
    Equipment           |  | 3M
    USD L + 5.00% (1% Floor)  |  | 6/14/2018   |  | 5/1/2024   |  |                 | 497,475    |  |            |   | 496,315    |       |  |               | 486,928   
|Elo
    Touch Solutions(5)                             |  | High
    Tech Industries        |  | 3M
    USD L + 6.50% (1% Floor)  |  | 12/7/2018   |  | 12/5/2025  |  |                 | 1,000,000  |  |            |   | 950,000    |       |  |               | 950,000   
|Envision
    Healthcare, Inc.                          |  | Healthcare
    Services         |  | 1M
    USD L + 3.75% (1% Floor)  |  | 9/28/2018   |  | 10/10/2025 |  |                 | 2,000,000  |  |            |   | 1,995,040  |       |  |               | 1,860,000 
|GI
    Revelation Acquisition LLC                      |  | Business
    Services           |  | 1M
    USD L + 5.00% (1% Floor)  |  | 4/11/2018   |  | 4/11/2025  |  |                 | 746,873    |  |            |   | 743,357    |       |  |               | 743,139   
|Hill
    International, Inc.                           |  | Business
    Services           |  | 3M
    USD L + 5.75% (1% Floor)  |  | 9/22/2017   |  | 6/21/2023  |  |                 | 1,477,500  |  |            |   | 1,471,084  |       |  |               | 1,473,806 
|Idera,
    Inc.                                        |  | Computers
    & Electronics     |  | 1M
    USD L + 4.50% (1% Floor)  |  | 6/29/2017   |  | 6/28/2024  |  |                 | 1,331,507  |  |            |   | 1,329,303  |       |  |               | 1,338,164 
|Isagenix
    International LLC                         |  | Direct
    Selling              |  | 3M
    USD L + 5.75% (1% Floor)  |  | 4/26/2018   |  | 6/14/2025  |  |                 | 2,925,000  |  |            |   | 2,935,223  |       |  |               | 2,827,598 
|JP
    Intermediate Term Loan                          |  | Direct
    Selling              |  | 3M
    USD L + 5.50% (1% Floor)  |  | 10/19/2018  |  | 11/15/2025 |  |                 | 500,000    |  |            |   | 495,073    |       |  |               | 495,000   
|Logibec
    Inc.(4)                                    |  | Healthcare
    IT               |  | 1M
    CDOR + 6.00% (1% Floor)   |  | 6/14/2017   |  | 1/15/2020  |  |                 | 4,563,960  |  |            |   | 4,686,491  |       |  |               | 4,518,321 
|MHVC
    Acquisition Corp (Magnolia/Peraton)           |  | Aerospace
    and Defense       |  | 3M
    USD L + 5.25% (1% Floor)  |  | 9/21/2018   |  | 4/28/2024  |  |                 | 994,949    |  |            |   | 989,975    |       |  |               | 962,614   
|Mills
    Fleet Farms                                  |  | Consumer
    Goods              |  | 1M
    USD L + 6.25% (1% Floor)  |  | 10/19/2018  |  | 10/19/2024 |  |                 | 5,000,000  |  |            |   | 4,902,388  |       |  |               | 4,900,000 
|MRO
    Holdings, Inc.                                 |  | Transportation                  |  | 3M
    USD L + 5.25% (1% Floor)  |  | 10/20/2017  |  | 10/25/2023 |  |                 | 990,000    |  |            |   | 981,904    |       |  |               | 990,000   
|Next
    Level Apparel, Inc.                           |  | Consumer
    Goods              |  | 1M
    USD L + 6.00% (1% Floor)  |  | 7/27/2018   |  | 7/26/2024  |  |                 | 1,987,500  |  |            |   | 1,968,004  |       |  |               | 1,967,625 
|NM
    Z Parent Inc (Zep Inc)                          |  | Chemicals
    & Allied Products |  | 3M
    USD L+ 4.00% (1% Floor)   |  | 5/25/2018   |  | 8/9/2024   |  |                 | 992,462    |  |            |   | 981,013    |       |  |               | 876,642   
|Octave
    Music Group, Inc.                           |  | Broadcasting
    & Subscription |  | 1M
    USD L + 4.75% (1% Floor)  |  | 10/17/2017  |  | 5/28/2021  |  |                 | 987,212    |  |            |   | 992,027    |       |  |               | 987,212   
|ScribeAmerica
    (HealthChannels)                     |  | Healthcare
    Services         |  | 1M
    USD L + 4.50% (1% Floor)  |  | 10/31/2018  |  | 4/3/2025   |  |                 | 997,487    |  |            |   | 987,561    |       |  |               | 987,513   
|ThreeBridge
    Solutions Delayed Draw(7)              |  | IT
    Implementation           |  | -                                |  | 12/1/2017   |  | 12/1/2022  |  |                 | 277,916    |  |            |   | 275,232    |       |  |               | 275,136   
|ThreeBridge
    Solutions Term Loan                    |  | IT
    Implementation           |  | 1M
    USD L+ 9.00% (1% Floor)   |  | 12/1/2017   |  | 12/1/2022  |  |                 | 5,456,700  |  |            |   | 5,394,248  |       |  |               | 5,402,133 
|World
    Insurance Associates, LLC Delayed Draw(5)(7) |  | Insurance
    Brokerage         |  | 1M
    USD L + 4.75% (1% Floor)  |  | 7/2/2018    |  | 7/18/2024  |  |                 | 332,446    |  |            |   | 325,366    |       |  |               | 317,447   
|World
    Insurance Associates, LLC(5)                 |  | Insurance
    Brokerage         |  | 1M
    USD L + 4.75% (1% Floor)  |  | 7/2/2018    |  | 7/18/2024  |  |                 | 2,493,750  |  |            |   | 2,469,748  |       |  |               | 2,468,813 
|Total
    First Lien Senior Secured                    |  |                                 |  |                                  |  |             |  |            |  | $               | 62,259,869 |  |            | $ | 61,888,480 |       |  | $             | 61,194,099
|                                                       |  |                                 |  |                                  |  |             |  |            |  |                 |            |  |            |   |            |       |  |               |           
|Total
    Debt Investments                             |  |                                 |  |                                  |  |             |  |            |  | $               | 62,259,869 |  |            | $ | 61,888,480 |       |  | $             | 61,194,099



|                                          |  | Yield
    to |      |   | Maturity |          | Acquisition |            | Number
    of |  |            | Principal
    / |  |   | Amortized  |  |  | Fair  |            | Percentage    | 
|----------------------------------------- |  | ------------ | ---- | - | -------- | -------- | ----------- | ---------- | ------------- |  | ---------- | --------------- |  | - | ---------- |  |  | ----- | ---------- | ------------- | 
|Company(3)                                |  | Maturity     |      |   | Date     |          | Date        |            | Shares        |  |            | Par             |  |   | Cost(6)    |  |  | Value |            | of Net Assets | 
|U.S. Government Securities                |  |              |      |   |          |          |             |            |               |  |            |                 |  |   |            |  |  |       |            |               | 
|U.S.
    Treasury Bill(5)                 |  |              | 0.00 | % |          | 1/3/2019 |             | 12/31/2018 |               |  | 15,000,000 |                 |  | $ | 15,000,000 |  |  | $     | 14,999,107 |               | 
|Total
    U.S. Government Securities      |  |              |      |   |          |          |             |            |               |  |            |                 |  |   | 15,000,000 |  |  |       | 14,999,107 |               | 
|                                          |  |              |      |   |          |          |             |            |               |  |            |                 |  |   |            |  |  |       |            |               | 
|Total
    Investments                     |  |              |      |   |          |          |             |            |               |  |            |                 |  | $ | 77,259,869 |  |  | $     | 76,887,587 |               | 
|Liabilities
    in Excess of Other Assets |  |              |      |   |          |          |             |            |               |  |            |                 |  |   |            |  |  |       |            |               | 
|Net
    assets                            |  |              |      |   |          |          |             |            |               |  |            |                 |  |   |            |  |  |       |            |               | 





F-10







Flat
Rock Capital Corp.

Consolidated
Schedule of Investments

As
of December 31, 2018



Forward
foreign currency contracts outstanding as of December 31, 2018 were as follows:



|              |  |               |  |                               |  |            |           |  | Unrealized     | 
|------------- |  | ------------- |  | ----------------------------- |  | ---------- | --------- |  | -------------- | 
|Currency      |  | Currency      |  |                               |  | Expiration |           |  | Appreciation   | 
|Purchased     |  | Sold          |  | Counterparty                  |  | Date       |           |  | (Depreciation) | 
|              |  |               |  |                               |  |            |           |  |                | 
|USD 5,090,981 |  | CAD 6,435,000 |  | Bannockburn Global Forex, LLC |  |            | 1/31/2019 |  |                | 



CAD
Canadian Dollar

USD
United States Dollar



| | (1) | The amortized cost represents the original cost adjusted
for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Loan contains a variable rate structure, subject to an
interest rate floor. Variable rate loans bear interest at a rate that may be determined by reference to either the London Interbank
Offered Rate (“LIBOR” or “L”) (which can include one-, two-, three- or six-month LIBOR), Canadian Dollar
Offered Rate (“CDOR”), or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime
Rate), at the borrower’s option, and which reset periodically based on the terms of the loan agreement. As of December 31, 2018, the 1 month (1M), 2 month
(2M), and 3 month (3M) USD LIBOR rates were 2.50%, 2.61%, and 2.81%, respectively. As of December 31, 2018,
CDOR was 2.25%.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | As of December 31, 2018, all investments are non-controlled,
non-affiliated investments. Non-controlled, non-affiliated investments are defined as investments in which the Company owns
less than 5% of the portfolio company’s outstanding voting securities and does not have the power to exercise control over
the management or policies of such portfolio company.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Non-qualifying investment as defined by Section 55(a) of
the Investment Company Act of 1940. As of December 31, 2018, 5.60% of the Company’s total assets were in non-qualifying
investments.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Investments or a portion of investments are unsettled as
of December 31, 2018.
| | --- | ------------------------------------------------------------------------------



| | (6) | As of December 31, 2018, the tax cost of the Company’s
investments approximates their amortized cost.
| | --- | -----------------------------------------------------------------------------------------------------



| | (7) | Of the entire $1,499,837 commitment to World Insurance
                                                                              Associates,                                                                               LLC Delayed Draw, $1,167,391 was
                                                                              unfunded as of December 31, 2018. As such, no interest is being earned on this
                                                                              investment. The investment is subject to a 0.50% commitment fee (see Note 8  to the consolidated financial statements).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Security or portion thereof held within FRC Funding I, LLC and is pledged as collateral supporting the amounts outstanding
under a revolving credit facility with State Bank and Trust Company (see Note 6 to the consolidated financial statements).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



F-11







Flat Rock Capital Corp.

Notes to Consolidated Financial Statements



Note 1. Organization



Flat Rock Capital Corp. (the “Company”)
is a Maryland corporation formed on March 20, 2017 that commenced operations on May 3, 2017. The Company was formed to primarily
make debt investments in senior secured loans of U.S. middle-market companies (“Senior Loans”). The Company is an
externally managed, non-diversified, closed-end investment company that has elected to be regulated as a business development
company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for
tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of
the Internal Revenue Code of 1986, as amended (the “Code”). Because the Company has elected to be regulated as a BDC
and has elected to be treated as a RIC under the Code, the Company’s portfolio is subject to diversification and other requirements.
The Company’s investment objective is the preservation of capital while generating current income from its debt investments
and seeking to maximize the portfolio’s total return.



Flat Rock Global, LLC (the “Adviser”
or “Flat Rock Global”), a Delaware limited liability company, serves as the Company’s investment adviser. The
Adviser is registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment
Advisers Act of 1940 (the “Advisers Act”). The Adviser oversees the management of the Company’s activities and
is responsible for making investment decisions with respect to, and providing day-to-day management and administration of, the
Company’s investment portfolio under the terms of an investment advisory agreement between the Company and the Adviser (the
“Investment Advisory Agreement”), subject to the supervision of the Company’s Board of Directors (the “Board”).
The Board consists of three directors, two of whom are not “interested persons,” as such term is defined in Section
2(a)(19) of the 1940 Act, of the Company of Flat Rock Global.



The Company is conducting a continuous
private offering of shares of its common stock (“Shares”) to investors in reliance on exemptions from the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”). Shares are offered solely to investors
that are “accredited investors” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. The
Company offers Shares through its agents and employees without sales commission or other remuneration on a “best efforts”
basis. The Company believes that each of its employees and agents qualifies as an “associated person not deemed to be broker”
within the meaning of Rule 3a4-1 promulgated pursuant to the Securities Exchange Act of 1934, as amended.



Note 2. Significant Accounting Policies



Basis of Presentation



The accompanying audited consolidated financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”). The accompanying consolidated financial statements of the Company and related
financial information have been prepared pursuant to the requirements for reporting on Form 10-K and Articles 6 or 10 of Regulation
S-X. The Company is an investment company, and, therefore, applies the specialized accounting and reporting guidance in Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial
Services - Investment Companies.



Basis of Consolidation



As provided under Regulation S-X and ASC
Topic 946, the Company will generally not consolidate its investment in a company other than a wholly-owned investment company
subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company
consolidated the results of the Company’s special purpose wholly-owned subsidiary, FRC Funding I, LLC, which was formed
on August 31, 2018, in its consolidated financial statements. All intercompany transactions and balances have been eliminated
in consolidation.



Revenue Recognition



Security transactions are accounted
for on the trade date. Distributions received from limited liability company and limited partnership investments are evaluated to determine if the distribution should be recorded as dividend
income or a return of capital. The Company does not accrue as a receivable interest or dividends on loans and securities if it
has reason to doubt its ability to collect such income.



Loan origination fees, original issue
discount and market discount are capitalized and the Company amortizes such amounts as interest income over the respective
term of the loan or security using the effective interest method. Upon the prepayment of a loan or security, any
unamortized loan origination fees and original issue discount are recorded as interest income. Structuring and other
non-recurring upfront fees are recorded as fee income when earned. The Company records prepayment premiums on loans and
securities as fee income when it receives such amounts.





F-12







Interest and Dividend Income Recognition



Interest income is recorded on the accrual
basis and includes amortization of premiums or accretion of discounts. Discounts and premiums to par value on securities purchased
are accreted and amortized, respectively, into interest income over the contractual life of the respective security using the
effective interest method. The amortized cost of investments represents the original cost adjusted for the amortization of premiums
or accretion of discounts, if any. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan
origination fees and unamortized discounts are recorded as interest income in the current period.



Loans are generally placed on non-accrual
status when there is reasonable doubt that principal or interest will be collected in full. The Company considers many factors relevant to an investment when placing it on or removing it from non-accrual status including,
but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition
of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances
relevant to the investment. Accrued interest is generally reversed
when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied
to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status
when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management
may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral
value and is in the process of collection.



Dividend income on preferred equity securities
is recorded on the accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected.
Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend
date for publicly-traded portfolio companies.



Other Income



From time to time, the Company may receive
fees for services provided to portfolio companies. These fees are generally only available to the Company as a result of closing
investments, are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when
earned upon closing of the investment. The services that the Adviser provides vary by investment, but can include closing, work,
diligence or other similar fees and fees for providing managerial assistance to the Company’s portfolio companies. In addition,
the Company may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees and possibly
consulting and performance- based fees.



Use of Estimates



U.S. GAAP requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during
the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these
estimates could cause actual results to differ materially.



F-13







Cash and Cash Equivalents



Cash and cash equivalents (e.g. U.S.
Treasury bills) may include demand deposits and highly liquid investments with original maturities of three months or less.
Cash and cash equivalents are carried at cost, which approximates fair value. The Company deposits its cash and cash
equivalents with highly-rated banking corporations and, at times, may exceed the insured limits under applicable law.



Income Taxes



The Company has elected to be treated for
U.S. federal income tax purposes as a RIC under the Code. So long as the Company maintains its status as a RIC, it generally will
not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes at least annually
to its stockholders as dividends. Rather, any tax liability related to income earned by the Company represents obligations of
the Company’s investors and will not be reflected in the financial statements of the Company. To qualify as a RIC under
Subchapter M of the Code, the Company must, among other things, meet certain source-of-income and asset diversification requirements.
In addition, to qualify for RIC tax treatment, the Company must distribute to its stockholders, for each taxable year, at least
90% of its “investment company taxable income” for that year, which is generally its ordinary income plus the excess
of its realized net short-term capital gains over its realized net long-term capital losses.



In order for the Company not to be subject
to U.S. federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its net ordinary income
(taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gains in excess of capital
losses for the calendar year and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years
that were not distributed during such years. The Company, at its discretion, may carry forward taxable income in excess of calendar
year dividends and pay a 4% nondeductible U.S. federal excise tax on this income.



The Company evaluates tax positions taken
or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not”
to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than- not” threshold
are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes
are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date
based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof.



Although the Company files federal and
state tax returns, its major tax jurisdiction is federal. The Company’s inception-to-date federal tax years remain subject
to examination by the Internal Revenue Service and the State of Maryland Department of Assessments and Taxation.



Valuation of Portfolio Investments



The Company has adopted FASB ASC Topic
820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value
in accordance with U.S. GAAP and expands disclosures about fair value measurements.



ASC Topic 820 clarifies that fair value
is defined as the price that the Company would receive upon selling an investment or paying to transfer a liability to a market
participant in the principal or most advantageous market for the investment. The transaction to sell the asset or transfer the
liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that
holds the asset or owes the liability. ASC Topic 820 provides a consistent definition of fair value that focuses on exit price
and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. In addition,
ASC Topic 820 provides a framework for measuring fair value and establishes a three-level hierarchy for fair value measurements
based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as discussed in Note
5.



The Board has established procedures for
the valuation of the Company’s investment portfolio. The valuation committee, which is comprised of the independent members
of the Board, is responsible for executing the valuation policy, with assistance from Flat Rock Global and one or more independent
valuation firms. These procedures are detailed below.



Investments for which market quotations
are readily available are valued at such market quotations.



Most of the Company’s investments
are not traded on a national securities exchange and do not have the benefit of market quotations or other pricing data from such
an exchange. With respect to investments for which pricing data is not readily available or when such pricing data is deemed not
to represent fair value, the Board has approved a multi-step valuation process each quarter, as described below:



| | 1. | each
    portfolio company or investment is valued by Flat Rock Global, potentially with information received from one or more independent
    valuation firms engaged by the Company;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | an
    independent valuation firm conducts independent valuations and makes an independent assessment of the value of each investment
    on a rotating basis so that each investment is valued at least twice annually;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | the
    valuation committee of the Board reviews and discusses the preliminary valuations prepared by Flat Rock Global and that of
    the independent valuation firm; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | the
    Board discusses the valuations and determines the fair value of each investment in the Company’s portfolio in good faith
    based on the input of Flat Rock Global, an independent valuation firm and the valuation committee.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-14







Investments 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 value amount (discounted)
calculated based on an appropriate discount rate. The measurement is based on the net present value indicated by current market
expectations about those future amounts. In following these approaches, the types of factors that may be taken into account in
fair value pricing the Company’s investments include, as relevant: 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, M&A comparables, the principal market and enterprise values, among other factors.



Investments
in private investment companies are measured based upon NAV as a practical expedient to determine fair value. The Company applies
the practical expedient to private investment companies on an investment-by-investment basis, and consistently with the Company’s
entire position in a particular investment, unless it is probable that the Company will sell a portion of an investment at an
amount different from the NAV of the investment. Each of these investments has certain restrictions with respect to rights of
withdrawal by the Company as specified in the respective agreements. Generally, the Company is required to provide notice of its
intent to withdraw after the investment has been maintained for a certain period of time. The management agreements of the private
investment companies provide for compensation to the managers in the form of fees ranging from 0% to 2% annually of the net assets
and performance incentive allocations or fees ranging from 0% to 20% on net profits earned.



Net Realized Gains or Losses and Net Change in Unrealized
Appreciation or Depreciation



The Company measures realized gains or
losses by the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without
regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and
prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment
values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation,
when gains or losses are realized. The Company utilizes specific identification on a First-In, First-Out (“FIFO”)
basis as their tax-lot relief method.



Debt Issuance Costs



The Company records origination and other
expenses related to its debt obligations as debt issuance costs. These expenses are deferred and amortized over the life
of the related debt instrument. Debt issuance costs are presented on the consolidated statement of assets and liabilities as a
direct deduction from the debt liability. As of December 31, 2019, the balance
of debt issuance costs was $372,544, included in Credit Facility, net of $29,796,235 on the consolidated statements of assets
and liabilities.



Distributions to Common Stockholders



Distributions to common stockholders are
recorded on the record date. The amount to be distributed is determined by the Board and is generally based upon current and estimated
net earnings. Net realized long-term capital gains, if any, would be generally distributed at least annually, although the Company
may decide to retain such capital gains for investment.





F-15







Derivatives and Hedging Activities



Derivative instruments are defined as financial
instruments whose value and performance are based on the value and performance of another security or financial instrument. During
the year ended December 31, 2019, the Company utilized forward foreign currency contracts to hedge its foreign currency exposure.



The following table provides quantitative
disclosures about fair values of, and unrealized appreciation (depreciation) on, the Company’s derivative instruments as
of December 31, 2019 and 2018, grouped by contract type and risk exposure category.



|Derivatives                                                                                    
|-----------------------------------------------------------------------------------------------
|                                                                                               
|Unrealized appreciation (depreciation) per the Consolidated Statement of Assets and Liabilities
|Forward foreign currency exchange contracts                                                    
|Derivative Assets (Liabilities)                                                                



The following table lists the amount
of change in unrealized appreciation (depreciation) included in net increase (decrease) in net assets resulting from
operations during the years ended December 31, 2019 and 2018, and the period ended December 31, 2017, grouped by
contract type and risk exposure. There were no realized gains/(losses) generated on forward contracts during the year ended
December 31, 2018 and the period ended December 31, 2017.



|Fiscal Year Ended December 31,
    2019    
|-------------------------------------------
|Derivative Type                            
|                                           
|Forward foreign currency exchange contracts
|                                           



|Fiscal Year Ended December 31,
    2018    
|-------------------------------------------
|Derivative Type                            
|                                           
|Forward foreign currency exchange contracts



|For the Period May 3, 2017 (commencement of operations) through December 31, 2017
|---------------------------------------------------------------------------------
|Derivative Type                                                                  
|                                                                                 
|Forward foreign currency exchange contracts                                      





F-16









During the years ended
December 31, 2019 and 2018, and the period ended December 31, 2017, the Company’s quarterly average volume of
derivatives is as follows:



|                                            |  | For the Years Ended |           |  | For the Period
May 3,
2017
 (commencement of operations) through |  
|------------------------------------------- |  | ------------------- | --------- |  | ---------------------------------------------------------------- | -
|Notional Amount                             |  | December 31, 2019   |           |  | December 31, 2018                                                |  
|                                            |  |                     |           |  |                                                                  |  
|Forward Foreign Currency Exchange Contracts |  | $                   | 4,810,461 |  |                                                                  | $



Foreign Currency Translation



The Company’s books and records are
maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:



| | 1. | Fair
    value of investment securities, other assets and liabilities — at the exchange rates prevailing at the end of the applicable
    period; and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Purchases
    and sales of investment securities, income and expenses — at the exchange rates prevailing on the respective dates of
    such transactions.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



Although net assets and fair values are
presented based on the applicable foreign exchange rates described above, the Company does not isolate that portion of the results
of operations due to changes in foreign exchange rates on investments, other assets and debt from the fluctuations arising from
changes in fair values of investments and liabilities held. Such fluctuations are included with the net realized gain (loss) and
net change in unrealized gain (loss) from investments and liabilities.



Foreign security and currency translations
may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities.
These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic
developments, which could cause investments in foreign markets to be less liquid and prices to be more volatile than those of
comparable U.S. companies or U.S. government securities. During the year ended December 31, 2019, all foreign security and
currency translations were closed out as a result of the sale of the Company’s investment in a first lien senior secured loan to Logibec, Inc., which was denominated in Canadian currency.







Recently Issued Accounting Pronouncements



In August 2018, the FASB issued Accounting
Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement(“ASU 2018-13”). The primary focus of ASU 2018-13 is to improve the effectiveness
of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair
value measurement disclosures. In general, the amendments in ASU 2018-13 are effective for all entities for fiscal years and interim
periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt the removed or modified
disclosures upon the issuance of ASU 2018-13 and may delay adoption of the additional disclosures, which are required for public
companies only, until their effective date. Management has adopted certain disclosures of ASU 2018-13 and delayed adoption of
additional disclosures as permitted by the standard.





F-17







Note 3. Agreements and Related Party Transactions



Investment Advisory Agreement



On May 16, 2017, the Company entered
into the Investment Advisory Agreement with Flat Rock Global. Pursuant to the Investment Advisory Agreement, the Company pays
Flat Rock Global a fee for its services consisting of two components — a management fee and an incentive fee. The
management fee is calculated at an annual rate of 1.375% of the Company’s average gross assets as of the end of the two
most recently completed quarters and is payable quarterly in arrears. The management fee for any partial month or quarter
will be appropriately pro-rated. In order to meet the diversification tests required to qualify as a RIC, the Company, on
December 31, 2019, acquired $19,000,000 in face value of short-term U.S. Treasury Bills. This transaction had the effect
of increasing management fees payable to Flat Rock Global by $76,236 for a total gross management fee payable of $368,452;
however, Flat Rock Global waived the portion relating to the acquisition of short-term U.S. Treasury Bills. For the year
ended December 31, 2019, the Company incurred management fees of $1,376,674, $265,221 of which was waived by Flat Rock
Global. In addition, there are no recoupment agreements in place, and waived fees will not be recouped by Flat
Rock Global.



The incentive fee consists of two
parts. The first part, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly
in arrears based on 15% of the Company’s pre-incentive fee net investment income for the immediately preceding quarter.
The payment of the incentive fee on income is subject to payment of a preferred return to investors each quarter, expressed
as a quarterly rate of return on adjusted capital at the beginning of the most recently completed calendar quarter, of 1.5%
(6.0% annualized), subject to a “catch up” feature. The foregoing incentive fee is subject to a total return
requirement, which provides that no incentive fee in respect of the Company’s pre- incentive fee net investment income
is payable except to the extent that 15.0% of the cumulative net increase in net assets resulting from operations for the
prior twelve quarters exceeds the cumulative incentive fees accrued and/or paid for the prior twelve quarters. In other
words, any incentive fee on income that is payable in a calendar quarter is limited to the lesser of (i) 15.0% of the amount
by which the Company’s pre- incentive fee net investment income for such calendar quarter that exceeds the 1.5% hurdle,
subject to the “catch-up” provision and (ii) (x) 15.0% of the cumulative net increase in net assets resulting
from operations for the prior twelve quarters minus (y) the cumulative incentive fees accrued and/or paid for the prior
twelve quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations”
is the sum of the Company’s pre-incentive fee net investment income, realized gains and losses and unrealized gains and
losses since inception.



The total return requirement described
above is designed to measure the performance of Flat Rock Global over a longer time horizon than on a quarterly basis and to ensure
that Flat Rock Global does not earn fees for exceeding the hurdle rate in selected quarters while under-performing on a longer-
term basis. The total return requirement is likewise designed to incentivize Flat Rock Global to not focus solely on quarterly
performance, but to seek investments that exhibit strong performance on a long-term basis. The Company believes that the total
return requirement is beneficial to investors and has the potential to reduce the fees payable to Flat Rock Global in the event
of under-performance on a long-term basis.





F-18







Under the capital gains component of the
incentive fee, the Company pays Flat Rock Global at the end of each calendar year 15.0% of its aggregate cumulative realized capital
gains from inception through the end of that year, computed net of the Company’s aggregate cumulative realized capital losses
and the Company’s aggregate cumulative unrealized losses through the end of such year, less the aggregate amount of any
previously paid capital gain incentive fees. For the foregoing purpose, the Company’s “aggregate cumulative realized
capital gains” does not include any unrealized gains. It should be noted that the Company accrues an incentive fee for accounting
purposes taking into account any unrealized gains in accordance with U.S. GAAP. The capital gains component of the incentive fee
is not subject to any minimum return to stockholders. If such amount is negative, then no capital gains incentive fee is payable
for such year. Additionally, if the Investment Advisory Agreement is terminated as of a date that is not a calendar year end,
the termination date is treated as though it were a calendar year end for purposes of calculating and paying the capital gains
incentive fee.



For the year ended December 31,
2019, the Company incurred incentive fees on income of $546,204 of which $408,149 was waived by
Flat Rock Global. In addition, there are no recoupment agreements in place, and waived incentive fees will not be
recouped by Flat Rock Global.



For the year ended December 31, 2018,
and the period ended December 31, 2017, the Company did not incur incentive fees on income.



The Company includes unrealized gains
in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual
reflects the incentive fees that would be payable to Flat Rock Global if the Company’s entire portfolio was liquidated
at its fair value as of the balance sheet date even though Flat Rock Global is not entitled to an incentive fee with respect
to unrealized gains unless and until such gains are actually realized. For the years ended December 31, 2019 and 2018,
and the period ended December 31, 2017, the Company did not accrue capital gains incentive fees. On a quarterly basis, the
Company accrues for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of
such period.



Administration Agreement



The Company entered into an
administration agreement with Flat Rock Global to serve as its Administrator. Pursuant to the administration agreement, Flat
Rock Global provides the Company with services such as accounting, financial reporting, legal and compliance support and
investor relations support necessary for the Company to operate or has engaged a third-party firm to perform some or all of
these functions. The Company does not pay Flat Rock Global any fees pursuant to the Administration Agreement. The Company
reimburses Flat Rock Global for administrative expenses it incurs as a result of providing these services. Beginning on May
3, 2017, Flat Rock Global agreed to reimburse the Company for certain operating expenses. Flat Rock Global has no obligation
to reimburse any portion of the Company’s expenses but has indicated that it expects to continue such reimbursements
until it deems that the Company has achieved economies of scale sufficient to ensure that the Company bears a reasonable
level of expenses in relation to its income. The specific amount of expenses reimbursed by Flat Rock Global, if any, will be
determined at the end of each quarter. For the year ended December 31, 2019, there was no reimbursement for audit, fund
accounting, fund administration, insurance, legal, valuation and other fees. For the year ended December 31, 2018, the
reimbursement totaled $101,939. For the fiscal period May 3, 2017 (commencement of operations) through December 31, 2017, the
reimbursement totaled $520,033. To the extent reimbursements may be needed in the future, there can be no assurance that Flat
Rock Global will provide any such reimbursements. In addition, there are no recoupment agreements in place and the
aforementioned expenses will not be recouped by Flat Rock Global.



Note 4. Investments



The following table presents the composition
of the Company’s investment portfolio at cost and fair value as of December 31, 2019 and 2018:



|                                            |  | December 31, 2019 |             |  | December 31, 2018 |  
|------------------------------------------- |  | ----------------- | ----------- |  | ----------------- | -
|                                            |  |                   |             |  | Fair              |  
|                                            |  | Cost              |             |  | Value             |  
|First-lien senior secured debt              |  | $                 | 72,134,565  |  |                   | $
|Private Fund Investments                    |  |                   | 6,914,467   |  |                   |  
|Collateralized Loan Obligations             |  |                   | 3,800,904   |  |                   |  
|U.S. Government Securities                  |  |                   | 18,996,667  |  |                   |  
|                                            |  |                   | 101,846,603 |  |                   |  
|Forward foreign currency exchange contracts |  |                   | -           |  |                   |  
|Total Investments                           |  | $                 | 101,846,603 |  |                   | $



As of December 31, 2019, 14.6% of the investment portfolio at amortized cost and 14.6% of the investment portfolio measured at fair value, respectively,
were invested in portfolio companies with foreign domiciles, specifically Luxembourg and Switzerland, or non-controlled investment
companies. Such investments are not qualifying assets as defined by Section 55(a) of the 1940 Act.





F-19







The industry composition of investments
based on fair value as of December 31, 2019 and 2018 was as follows:



|                                             |  | December 31, 2019 |       |   | December 31, 2018 | 
|-------------------------------------------- |  | ----------------- | ----- | - | ----------------- | 
|                                             |  |                   |       |   |                   | 
|U.S. Government Securities                   |  |                   | 18.8  | % |                   | 
|Insurance Services                           |  |                   | 18.6  | % |                   | 
|Direct Selling                               |  |                   | 12.1  | % |                   | 
|Investment Vehicle                           |  |                   | 10.9  | % |                   | 
|IT Implementation                            |  |                   | 5.3   | % |                   | 
|Retail                                       |  |                   | 4.8   | % |                   | 
|Banking, Finance, Insurance & Real Estate    |  |                   | 4.8   | % |                   | 
|Media: Advertising, Printing, and Publishing |  |                   | 4.8   | % |                   | 
|Consumer Goods                               |  |                   | 4.6   | % |                   | 
|Construction & Building                      |  |                   | 3.8   | % |                   | 
|Healthcare Services                          |  |                   | 3.2   | % |                   | 
|Transportation: Cargo                        |  |                   | 2.5   | % |                   | 
|Wholesale                                    |  |                   | 1.9   | % |                   | 
|Aerospace & Defense                          |  |                   | 1.7   | % |                   | 
|Business Services                            |  |                   | 1.4   | % |                   | 
|Chemicals & Allied Products                  |  |                   | 0.8   | % |                   | 
|Healthcare IT                                |  |                   | 0.0   | % |                   | 
|Computers & Electronics                      |  |                   | 0.0   | % |                   | 
|Transportation                               |  |                   | 0.0   | % |                   | 
|High Tech Industries                         |  |                   | 0.0   | % |                   | 
|Broadcasting & Subscription                  |  |                   | 0.0   | % |                   | 
|Capital Equipment                            |  |                   | 0.0   | % |                   | 
|Insurance Brokerage                          |  |                   | 0.0   | % |                   | 
|Forward Foreign Currency Exchange Contracts  |  |                   | 0.0   | % |                   | 
|Total                                        |  |                   | 100.0 | % |                   | 



The geographic composition of investments
based on fair value as of December 31, 2019 and 2018 was as follows:



|                           |  | December 31, 2019 |       |   | December 31, 2018 | 
|-------------------------- |  | ----------------- | ----- | - | ----------------- | 
|                           |  |                   |       |   |                   | 
|United States:             |  |                   |       |   |                   | 
|Northeast                  |  |                   | 42.1  | % |                   | 
|U.S. Government Securities |  |                   | 18.8  | % |                   | 
|West                       |  |                   | 17.1  | % |                   | 
|Midwest                    |  |                   | 10.0  | % |                   | 
|Southeast                  |  |                   | 7.0   | % |                   | 
|South                      |  |                   | 0.8   | % |                   | 
|Switzerland                |  |                   | 2.5   | % |                   | 
|Luxembourg                 |  |                   | 1.7   | % |                   | 
|Canada                     |  |                   | 0.0   | % |                   | 
|Total                      |  |                   | 100.0 | % |                   | 





F-20









Note 5. Fair Value of Investments



Fair value is defined as the price that
the Company would receive upon selling an investment or paying to transfer a liability in an orderly transaction to a market participant
in the principal or most advantageous market for the investment. Accounting guidance emphasizes that valuation techniques maximize
the use of observable market inputs and minimize the use of unobservable inputs.



Inputs refer broadly to the assumptions
that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable
or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or
liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that
reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information
available in the circumstances. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation
of the investment as of the measurement date. The three levels are defined as follows:





| | Level 1 — Valuations based on quoted prices in active markets for identical assets
    or liabilities at the measurement date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Level 2 — Valuations based on inputs other than quoted prices in active markets included
    in Level 1, which are either directly or indirectly observable at the measurement date. This category includes quoted prices
    for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active
    markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other
    than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine
    the value of derivatives or other assets or liabilities.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Level 3 — Valuations based on inputs that are unobservable and where there is little,
    if any, market activity at the measurement date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   





Investments in private investment companies
measured based upon NAV as a practical expedient to determine fair value are not required to be categorized in the fair value
hierarchy.



The inputs for the determination of fair
value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions
that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments
in private companies or assets valued using the market or income approach and may involve pricing models whose inputs require
significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments.
The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and earnings before
interest, taxes, depreciation, and amortization (“EBITDA”) multiples. The information may also include pricing information
or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding
nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming
no additional corroborating evidence.



Pricing inputs and weightings applied to
determine fair value require subjective determination. Accordingly, valuations do not necessarily represent the amounts that may
eventually be realized from sales or other dispositions of investments.



A financial instrument’s categorization
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.





F-21







The following table presents the fair value
hierarchy of investments as of December 31, 2019 and December 31, 2018. Assets valued using NAV as a practical expedient,
an indicator of fair value, are listed in a separate column to permit reconciliation to totals in the Consolidated Statement of
Assets and Liabilities:



|                                |  | Fair Value Hierarchy as of
    December 31, 2019 |  
|------------------------------- |  | ------------------------------------------------ | -
|Investments:                    |  | Level 1                                          |  
|First-lien senior secured debt  |  | $                                                | -
|Private Fund Investments        |  |                                                  | -
|Collateralized Loan Obligations |  |                                                  | -
|U.S. Government Securities      |  |                                                  | -
|Total Investments               |  | $                                                | -



|                                            |  | Fair Value Hierarchy as of
    December 31, 2018 |  
|------------------------------------------- |  | ------------------------------------------------ | -
|Investments:                                |  | Level 1                                          |  
|First-lien senior secured debt              |  | $                                                | -
|U.S. Government Securities                  |  |                                                  | -
|Forward foreign currency exchange contracts |  |                                                  | -
|Total Investments                           |  | $                                                | -



The following table presents changes in
the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the years ended December 31,
2019 and 2018:



|                                                          |  | For the Years Ended |            
|--------------------------------------------------------- |  | ------------------- | -----------
|First-lien senior secured debt                            |  | December 31,
2019   |            
|Fair value, beginning of period                           |  | $                   | 61,194,099 
|Purchases of investments                                  |  |                     | 80,447,699 
|Proceeds from principal payments and sales of investments |  |                     | (70,252,423
|Net change in unrealized gain (loss)                      |  |                     | 25,593     
|Net accretion of discount on investments                  |  |                     | 59,099     
|Transfers into (out of) Level 3                           |  |                     | -          
|Fair value, end of period                                 |  | $                   | 71,474,067 



|                                                          |  | For the Years Ended |          
|--------------------------------------------------------- |  | ------------------- | ---------
|Collateralized loan obligations                           |  | December 31,
2019   |          
|Fair value, beginning of period                           |  | $                   | -        
|Purchases of investments                                  |  |                     | 3,800,000
|Proceeds from principal payments and sales of investments |  |                     | -        
|Net change in unrealized gain (loss)                      |  |                     | 259,896  
|Net accretion of discount on investments                  |  |                     | 904      
|Transfers into (out of) Level 3                           |  |                     | -        
|Fair value, end of period                                 |  | $                   | 4,060,800



The following table presents the net change
in unrealized gains/(losses) for the period relating to these Level 3 assets that were still held by the Company at the end of
the years ended December 31, 2019 and 2018 and the period ended December 31, 2017:



|                                     |  | For the Years Ended |         |   | For the Period May 3, 
2017
    (commencement of operations) through |  
|------------------------------------ |  | ------------------- | ------- | - | -------------------------------------------------------------------- | -
|Net Change in Unrealized Gain (Loss) |  | December 31, 2019   |         |   | December 31, 2018                                                    |  
|                                     |  |                     |         |   |                                                                      |  
|First-lien senior secured debt       |  | $                   | (87,939 | ) |                                                                      | $
|Collateralized loan obligations      |  |                     | 259,896 |   |                                                                      |  
|                                     |  | $                   | 171,957 |   |                                                                      | $





F-22







Market Based Approach:The
Company may estimate the total enterprise value of each portfolio company by utilizing market value cash flow (EBITDA)
multiples of publicly traded comparable companies and comparable transactions. The Company considers numerous factors when
selecting the appropriate companies whose trading multiples are used to value its portfolio companies. These factors include,
but are not limited to, the type of organization, similarity to the business being valued, and relevant risk factors, as well
as size, profitability and growth expectations. The Company may apply an average of various relevant comparable company
EBITDA multiples to the portfolio company’s latest twelve–month EBITDA or projected EBITDA to calculate the
enterprise value of the portfolio company. Significant increases or decreases in the EBITDA multiple will result in an
increase or decrease in enterprise value, which may result in an increase or decrease in the fair value estimate of the
investment. In applying the market-based approach as of December 31, 2019 and December 31, 2018, the Company used
the relevant EBITDA and revenue multiple ranges set forth in the table below to determine the enterprise value of its
portfolio companies.



The Company believes these were reasonable
ranges in light of current comparable company trading levels and the specific portfolio companies involved.



Income Based Approach:The
Company also may use a discounted cash flow analysis to estimate the fair value of an investment. Projected cash flows represent
the relevant security’s contractual interest, fee and principal payments plus the assumption of full principal recovery
at the investment’s expected maturity date. These cash flows are discounted at a rate established utilizing a yield calibration
approach, which incorporates changes in the credit quality (as measured by relevant statistics) of the portfolio company, as compared
to changes in the yield associated with comparable credit quality market indices, between the date of origination and the valuation
date. Significant increases or decreases in the discount rate would result in a decrease or increase in the fair value measurement.
In applying the income-based approach as of December 31, 2019 and December 31, 2018, the Company used the discount ranges
set forth in the table below to value investments in its portfolio companies.



Fair value was also determined in some
cases based on transaction pricing or recent acquisition or sale as the best measure of fair value with no material changes in
operations of the related portfolio company since the transaction date.



The following table presents quantitative
information about the significant unobservable inputs of the Company’s Level 3 investments as of December 31, 2019
and 2018. The table is not intended to be all-inclusive but instead captures the significant unobservable inputs relevant to the
Company’s determination of fair value.



|                                |  | As of December 31, 2019 |           
|------------------------------- |  | ----------------------- | ----------
|                                |  | Fair Value              |           
|Collateralized loan obligations |  | $                       | 4,060,800 
|First-lien senior secured debt  |  |                         | 4,900,000 
|First-lien senior secured debt  |  |                         | 66,574,067
|                                |  | $                       | 75,534,867
|                                |  |                         |           



|                               |  | As of December 31, 2018 |           
|------------------------------ |  | ----------------------- | ----------
|                               |  | Fair Value              |           
|First-lien senior secured debt |  | $                       | 37,072,165
|First-lien senior secured debt |  |                         | 24,121,934
|                               |  | $                       | 61,194,099



Note 6. Borrowings



In accordance with the 1940 Act, with certain
limitations, BDCs are allowed to borrow amounts such that their asset coverage ratios, as defined in the 1940 Act, are at least
200% after such borrowing. As of May 30, 2019, as a result of complying with the requirements set forth in the Small Business
Credit Availability Act (“SBCAA”), the Company is able to borrow amounts such that its asset coverage ratio is at
least 150%, rather than 200%. As of December 31, 2019 and 2018, the Company’s asset coverage ratio was 287% and 250%, respectively.



On October 12, 2018, the Company,
through a special purpose wholly-owned subsidiary, FRC Funding I, LLC (“FRC Funding” and together with the
Company, the “Borrowers”) entered into a Loan and Security Agreement (the “Loan Agreement”) with
certain financial institutions as lenders (“Lenders”), State Bank and Trust Company as the administrative agent
(“State Bank”) and Alostar Capital Finance (“Alostar”), as Lead Arranger and Bookrunner, pursuant to
which the Lenders agreed to provide the Company with a revolving line of credit (the “Credit Facility”). The Loan
Agreement was effective as of October 12, 2018. Per the second amendment of the Loan Agreement, Cadence Bank, N.A. is the
successor by merger to State Bank and Trust Company. The termination date for the Loan Agreement is October 12, 2022.





F-23







The Loan Agreement provides for an initial
$20.0 million in Revolver Commitments (as defined in the Loan Agreement) to be available at closing that the Company can draw
down and repay for three years, subject to borrowing base eligibility. The Loan Agreement matures at the earliest of (a) the date
that is four (4) years from closing, (b) the date on which FRC Funding terminates the Revolver Commitments pursuant to the Loan
Agreement; or (c) the date on which the Revolver Commitments are terminated pursuant to certain events of default under the Loan
Agreement; and the Scheduled Revolving Period End Date (as defined in the Loan Agreement) is three years from closing. On December
10, 2018, the Loan Agreement was amended to add Hitachi Capital America Corp. to the definition of “Lenders” and to
amend the definition of “Revolver Commitments” to increase the aggregate amount available to the Borrowers under the
Revolver Commitments to $30 million, beginning with the effective date of the amendment. On May 31, 2019, the Loan Agreement was
further amended to revise the definitions for “Asset Coverage Ratio” and “Service Termination Event,”
and increase the aggregate amount available to Borrowers under the Revolver Commitments to $35 million, beginning with the effective
date of the amendment.



Debt obligations consisted of the following
as of December 31, 2019 and December 31, 2018:



|                |  | December 31, 2019             |           
|--------------- |  | ----------------------------- | ----------
|                |  | Aggregate Principal Committed |           
|Credit Facility |  | $                             | 35,000,000
|Total debt      |  | $                             | 35,000,000



| | (1) | The amount available reflects any limitations related
to the Credit Facility’s borrowing base.
| | --- | ----------------------------------------------------------------------------------------------

| | (2) | The carrying value of the Credit Facility is presented
net of deferred financing costs and loan servicing fees of approximately $0.4 million.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



|                |  | December 31, 2018             |           
|--------------- |  | ----------------------------- | ----------
|                |  | Aggregate Principal Committed |           
|Credit Facility |  | $                             | 30,000,000
|Total debt      |  | $                             | 30,000,000



| | (1) | The amount available reflects any limitations related
to the Credit Facility’s borrowing base.
| | --- | ----------------------------------------------------------------------------------------------

| | (2) | The carrying value of the Credit Facility is presented
net of deferred financing costs and loan servicing fees of approximately $0.4 million.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



Average debt outstanding during the years
ended December 31, 2019 and 2018 was $25,684,091 and $12,654,577, respectively.



The Loan Agreement accrues interest at
the Daily LIBOR Rate, plus a 2.88% margin, and principal is repayable in full at maturity. Interest is generally required to be
paid monthly in arrears. The Loan Agreement requires the payment of an unused line fee of between 0.50% and 1.0%, commencing on
the date that is two months from closing, based on the amount by which the Revolver Commitments exceed the average daily balance
of the Revolver Loans (as defined in the Loan Agreement) during any month. Such fee is payable monthly in arrears. The Loan Agreement
has an advance rate against FRC Funding’s Eligible Portfolio Investments (as defined in the Loan Agreement). The advance
rate, as to any Eligible Portfolio Investment, is 75.0% when the Company’s asset coverage ratio is equal or greater than
200.0% or 70.0% when the Company’s asset coverage ratio is less than 200.0%, subject to certain eligibility requirements.



For the years ended December 31, 2019
and 2018, the components of interest expense relating to the credit facility were as follows:



|                                    |  | For the Years Ended |          
|----------------------------------- |  | ------------------- | ---------
|                                    |  | December 31, 2019   |          
|                                    |  |                     |          
|Interest expense                    |  | $                   | 1,350,669
|Amortization of debt issuance costs |  |                     | 125,899  
|Total interest expense              |  | $                   | 1,476,568
|Average interest rate               |  |                     | 5.06     



Pursuant to the terms of the Loan
Agreement, the Borrowers granted to State Bank for the benefit of State Bank and Hitachi, Lenders, Alostar and its affiliates, a
security interest and a lien in substantially all of FRC Funding’s assets. The Loan Agreement contains certain
affirmative and negative covenants, including a minimum Company asset coverage ratio, a minimum fixed charge ratio, and a
minimum Company tangible net worth. Under the Loan Agreement, the Borrowers are required to make certain customary
representations and warranties and are required to comply with various covenants, reporting requirements and other
requirements that are customary for similar credit facilities. The obligations under the Loan Agreement may be accelerated
upon the occurrence of an event of default under the Loan Agreement or in the event of a change of control of the Company or
FRC Funding.





F-24







Note 7. Share Transactions



Offering Proceeds



During the year ended December 31,
2019, the Company issued and sold 1,021,942 shares of its common stock at an aggregate purchase price of $20.2 million. During the year ended December 31, 2018, the Company issued and sold 854,788 shares of its common stock at an aggregate purchase
price of $17,121,000. For the period May 3, 2017 (commencement of operations) through December 31, 2017, the Company issued
and sold 1,032,445 shares of its common stock at an aggregate purchase price of $20,649,000.



Distributions



The following table reflects the distributions
declared on shares of the Company’s common stock during the years ended December 31, 2019 and 2018, and the period
from May 3, 2017 (commencement of operations) through December 31, 2017:



The following table reflects the distributions
declared on shares during the fiscal year ended December 31, 2019:



|            |            |  |        |  |            |       |  |   |         |  |  | Total         |          
|----------- | ---------- |  | ------ |  | ---------- | ----- |  | - | ------- |  |  | ------------- | ---------
|Declaration |            |  | Record |  |            | Per   |  |   | Payment |  |  | Distributions |          
|Date        |            |  | Date   |  |            | Share |  |   | Date    |  |  | Declared      |          
|            | 11/13/2018 |  |        |  | 1/26/2019  |       |  | $ | 0.108   |  |  |               | 2/6/2019 
|            | 11/13/2018 |  |        |  | 2/26/2019  |       |  |   | 0.108   |  |  |               | 3/6/2019 
|            | 2/28/2019  |  |        |  | 3/26/2019  |       |  |   | 0.108   |  |  |               | 4/8/2019 
|            | 3/28/2019  |  |        |  | 4/26/2019  |       |  |   | 0.111   |  |  |               | 5/6/2019 
|            | 3/28/2019  |  |        |  | 5/26/2019  |       |  |   | 0.111   |  |  |               | 6/6/2019 
|            | 5/14/2019  |  |        |  | 6/26/2019  |       |  |   | 0.111   |  |  |               | 7/6/2019 
|            | 5/14/2019  |  |        |  | 7/26/2019  |       |  |   | 0.114   |  |  |               | 8/6/2019 
|            | 5/14/2019  |  |        |  | 8/26/2019  |       |  |   | 0.114   |  |  |               | 9/6/2019 
|            | 8/12/2019  |  |        |  | 9/26/2019  |       |  |   | 0.114   |  |  |               | 10/7/2019
|            | 8/12/2019  |  |        |  | 10/24/2019 |       |  |   | 0.114   |  |  |               | 11/6/2019
|            | 8/12/2019  |  |        |  | 11/25/2019 |       |  |   | 0.114   |  |  |               | 12/6/2019
|            | 11/12/2019 |  |        |  | 12/23/2019 |       |  |   | 0.114   |  |  |               | 1/6/2020 
|            |            |  |        |  |            |       |  |   |         |  |  |               |          



| | (1) | As of December 31, 2019, this distribution had
not been paid, which consisted of a cash dividend of $257,614 and dividends reinvested of $52,845. See disclosure of payment noted in Note 11 to the consolidated financial
statements.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table reflects the distrubtions declared on shares
during the fiscal year ended December 31, 2018:



|            |            |  |        |  |            |       |  |   |         |  |  | Total         |          
|----------- | ---------- |  | ------ |  | ---------- | ----- |  | - | ------- |  |  | ------------- | ---------
|Declaration |            |  | Record |  |            | Per   |  |   | Payment |  |  | Distributions |          
|Date        |            |  | Date   |  |            | Share |  |   | Date    |  |  | Declared      |          
|            | 1/26/2018  |  |        |  | 1/26/2018  |       |  | $ | 0.108   |  |  |               | 2/6/2018 
|            | 2/26/2018  |  |        |  | 2/26/2018  |       |  |   | 0.108   |  |  |               | 3/6/2018 
|            | 3/26/2018  |  |        |  | 3/26/2018  |       |  |   | 0.108   |  |  |               | 4/6/2018 
|            | 4/26/2018  |  |        |  | 4/26/2018  |       |  |   | 0.108   |  |  |               | 5/6/2018 
|            | 5/26/2018  |  |        |  | 5/26/2018  |       |  |   | 0.108   |  |  |               | 6/6/2018 
|            | 6/26/2018  |  |        |  | 6/26/2018  |       |  |   | 0.108   |  |  |               | 7/6/2018 
|            | 7/26/2018  |  |        |  | 7/26/2018  |       |  |   | 0.108   |  |  |               | 8/6/2018 
|            | 8/26/2018  |  |        |  | 8/26/2018  |       |  |   | 0.108   |  |  |               | 9/6/2018 
|            | 9/26/2018  |  |        |  | 9/26/2018  |       |  |   | 0.108   |  |  |               | 10/6/2018
|            | 10/26/2018 |  |        |  | 10/26/2018 |       |  |   | 0.108   |  |  |               | 11/6/2018
|            | 11/13/2018 |  |        |  | 11/26/2018 |       |  |   | 0.108   |  |  |               | 12/6/2018
|            | 11/13/2018 |  |        |  | 12/26/2018 |       |  |   | 0.108   |  |  |               | 1/7/2019 
|            |            |  |        |  |            |       |  |   |         |  |  |               |          



| | (1) | As of December 31, 2018, this distribution had
not been paid, which consisted of a cash dividend of $200,145 and no dividends reinvested. See balance payable on the Consolidated
Statements of Assets and Liabilities, as well as disclosure of payment noted in Note 11 to the consolidated financial statements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-25









The following table reflects the distrubtions declared on shares
during the fiscal year ended December 31, 2017:



|            |            |  |        |  |            |       |  |   |         |  |  | Total         |          
|----------- | ---------- |  | ------ |  | ---------- | ----- |  | - | ------- |  |  | ------------- | ---------
|Declaration |            |  | Record |  |            | Per   |  |   | Payment |  |  | Distributions |          
|Date        |            |  | Date   |  |            | Share |  |   | Date    |  |  | Declared      |          
|            | 8/25/2017  |  |        |  | 8/25/2017  |       |  | $ | 0.108   |  |  |               | 9/6/2017 
|            | 9/26/2017  |  |        |  | 9/26/2017  |       |  |   | 0.108   |  |  |               | 10/6/2017
|            | 10/26/2017 |  |        |  | 10/26/2017 |       |  |   | 0.108   |  |  |               | 11/6/2017
|            | 11/26/2017 |  |        |  | 11/26/2017 |       |  |   | 0.108   |  |  |               | 12/6/2017
|            | 12/26/2017 |  |        |  | 12/26/2017 |       |  |   | 0.108   |  |  |               | 1/6/2018 
|            |            |  |        |  |            |       |  |   |         |  |  |               |          



| | (1) | As of December 31, 2017, this distribution had not
been paid, which consisted of a cash dividend of $110,964 and no dividends reinvested. See balance payable on the Consolidated
Statements of Assets and Liabilities, as well as disclosure of payment noted in Note 11 to the consolidated financial statements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Distribution Reinvestment Plan



On March 28, 2019, the Board approved the establishment of
a distribution reinvestment plan (the “DRIP”). The DRIP was effective as of, and was first applied to the reinvestment
of cash distributions paid on or after, May 1, 2019.



Under the DRIP, cash distributions paid to participating stockholders
are reinvested in Shares at a price equal to the net asset value per share of the Shares as of such date. New stockholders of
the Company on or after May 1, 2019 became participating stockholders in the DRIP unless they affirmatively declined participation
in the DRIP. Existing stockholders of the Company prior to May 1, 2019 were given the opportunity to participate in the DRIP.



The following table reflects the common stock issued pursuant
to the DRIP during the period May 1, 2019 to December 31, 2019:



|Declaration |  | Record     |  | Payment   |     |        |       
|----------- |  | ---------- |  | --------- | --- | ------ | ------
|Date        |  | Date       |  | Date      |     | Shares |       
|3/28/2019   |  | 5/26/2019  |  | 6/6/2019  |     |        | 2,208 
|5/14/2019   |  | 6/26/2019  |  | 7/6/2019  |     |        | 2,220 
|5/14/2019   |  | 7/26/2019  |  | 8/6/2019  |     |        | 2,503 
|5/14/2019   |  | 8/26/2019  |  | 9/6/2019  |     |        | 2,605 
|8/12/2019   |  | 9/26/2019  |  | 10/7/2019 |     |        | 2,605 
|8/12/2019   |  | 10/24/2019 |  | 11/6/2019 |     |        | 2,642 
|8/12/2019   |  | 11/25/2019 |  | 12/6/2019 |     |        | 2,660 
|11/12/2019  |  | 12/23/2019 |  | 1/6/2020  | (1) |        | 2,676 
|            |  |            |  |           |     |        | 20,119



| | (1) | As of December 31, 2019,
this distribution had not been paid, which consisted of a reinvestment of 2,676 shares at a value of $52,845. See balance payable
on the Consolidated Statements of Assets and Liabilities, as well as disclosure of payment noted in Note 11 to the consolidated
financial statements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Repurchases of Shares



As a result of the Company’s compliance with the requirements
set forth in the SBCAA, the asset coverage ratio test applicable to the Company was decreased from 200% to 150%, effective May
30, 2019. In order to comply with the requirement that the Company extend, within twelve months from May 30, 2018, to each of
the Company’s stockholders as of May 30, 2018, the opportunity to sell the securities held by that stockholder as of that
date, the Company filed four tender offers on June 27, 2018, August 7, 2018, September 12, 2018, and October 24, 2018, each representing
25% of the total issued and outstanding shares as of May 30, 2018, July 31, 2018, September 11, 2018 and October 23, 2018, respectively.
The tender offer filed on June 27, 2018 resulted in the Company purchasing all 20,000 shares validly tendered and not withdrawn
at a price equal to $20.03 per share for an aggregate purchase price of approximately $400,600. The remaining tender offers did
not result in the Company purchasing any Shares pursuant to the offers.



Following the closing of the final tender offer above in order
to comply with the provisions of the SBCAA, the Company commenced its share repurchase program, whereby it intends to offer to
repurchase up to 5% if its issued and outstanding shares on a quarterly basis through registered tender offers. The table below
shows the effects of the quarterly repurchase offers made by the Company during the year ended December 31, 2019:



|Repurchase Offer Date |  | Repurchase Date  |  | Number of Shares Repurchased |        |  | Percentage of Shares Repurchased |  |     | Repurchase Price Per Share |  |   | Aggregate Consideration for
    Repurchased Shares | 
|--------------------- |  | ---------------- |  | ---------------------------- | ------ |  | -------------------------------- |  | --- | -------------------------- |  | - | -------------------------------------------------- | 
|April 1, 2019         |  | April 29, 2019   |  |                              | 18,750 |  |                                  |  | 100 | %                          |  | $ | 19.80                                              | 
|July 16, 2019         |  | August 14, 2019  |  |                              | 19,996 |  |                                  |  | 100 | %                          |  | $ | 19.77                                              | 
|October 1, 2019       |  | November 6, 2019 |  |                              | 37,911 |  |                                  |  | 100 | %                          |  | $ | 19.77                                              | 
|TOTAL                 |  |                  |  |                              | 76,657 |  |                                  |  |     |                            |  |   |                                                    | 





F-26







Note 8. Commitments and Contingencies



The Company had an aggregate of $3,052,200 of unfunded commitments
to provide debt financing to its portfolio companies or to fund limited partnership interests as of December 31, 2019. As
of December 31, 2019, there were no capital calls or draw requests made by the portfolio companies to fund these commitments.
Such commitments are generally up to the Company’s discretion to approve or are subject to the satisfaction of certain financial
and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the
Company’s consolidated statement of assets and liabilities and are not reflected in the Company’s consolidated statement
of assets and liabilities.



A summary of the composition of the unfunded commitments as
of December 31, 2019 is shown in the table below:



|                                 |  |                         |  | As of                 |          
|-------------------------------- |  | ----------------------- |  | --------------------- | ---------
|                                 |  | Expiration
    Date (1) |  | December 31,
    2019 |          
|                                 |  |                         |  |                       |          
|Coastal Construction Products    |  | 9/4/2020                |  | $                     | 1,000,000
|Specialist Resources Global Inc. |  | 9/26/2021               |  |                       | 1,666,667
|BCP Great Lakes Fund LP          |  | 11/27/2021              |  |                       | 385,533  
|Total unfunded commitments       |  |                         |  | $                     | 3,052,200



| | (1) | Commitments are generally subject to borrowers meeting
certain criteria such as compliance with covenants and certain operational metrics. These amounts may remain outstanding until
the commitment period of an applicable loan expires, which may be shorter than its maturity.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A summary of the composition of the unfunded commitments as
of December 31, 2018 is shown in the table below:



|                                |  |                         |  | As of                 |          
|------------------------------- |  | ----------------------- |  | --------------------- | ---------
|                                |  | Expiration
    Date (1) |  | December 31,
    2018 |          
|                                |  |                         |  |                       |          
|World Insurance Associates, LLC |  | 7/18/2024               |  | $                     | 1,167,391
|Total unfunded commitments      |  |                         |  | $                     | 1,167,391



| | (1) | Commitments are generally subject to borrowers meeting
certain criteria such as compliance with covenants and certain operational metrics. These amounts may remain outstanding until
the commitment period of an applicable loan expires, which may be shorter than its maturity.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



From time to time, the Company may become a party to certain
legal proceedings incidental to the normal course of its business. As of December 31, 2019, management is not aware of any
pending or threatened litigation.



F-27







Note 9. Earnings Per Share



In accordance with the provisions of ASC Topic 260, Earnings
per Share, basic earnings per share is computed by dividing earnings available to common shareholders
by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related
impact to earnings, are considered when calculating earnings per share on a diluted basis. As of December 31, 2019 and 2018,
there were no dilutive shares.



The following table sets forth the computation of basic and
diluted earnings per common share for the years ended December 31, 2019 and 2018, and the period from May 3, 2017 (commencement
of operations) through December 31, 2017:



|                                                                               |  |                       |           |  |                                                       |   |           | For the Period        | 
|------------------------------------------------------------------------------ |  | --------------------- | --------- |  | ----------------------------------------------------- | - | --------- | --------------------- | 
|                                                                               |  | For the Years Ended   |           |  | May 3,
 2017 (commencement
    of operations) through |  
|                                                                               |  | December 31,
    2019 |           |  | December 31,
    2018                                 |   |           | December 31,
    2017 | 
|                                                                               |  |                       |           |  |                                                       |   |           |                       | 
|Net increase in net assets resulting from operations                           |  | $                     | 3,169,648 |  |                                                       | $ | 1,164,513 |                       | 
|Weighted average common shares of common stock outstanding - basic and diluted |  |                       | 2,350,674 |  |                                                       |   | 1,317,698 |                       | 
|Earnings per common share - basic and diluted                                  |  | $                     | 1.35      |  |                                                       | $ | 0.88      |                       | 



Note 10. Income Taxes



The Company has elected to be treated as a RIC under the Code
beginning with the taxable year end December 31, 2017. As a RIC, the Company is not subject to federal income tax on the
portion of its taxable income and gains distributed currently to its stockholders as dividends. As a RIC, the Company is also
subject to a federal excise tax based on distributive requirements of its taxable income on a calendar year basis. Depending on
the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current
year distributions into the next tax year and pay a 4% excise tax on such income, to the extent required.



The permanent differences for tax purposes from distributable earnings to additional paid in capital were reclassified for tax purposes for
the tax year ended December 31, 2019. These reclassifications have no impact on net assets.



|                                                      |  | Year Ended December 31,
2019 |  
|----------------------------------------------------- |  | ---------------------------- | -
|                                                      |  |                              |  
|Increase (decrease) in distributable earnings         |  |                              | -
|                                                      |  |                              |  
|Increase (decrease) in capital in excess of par value |  | $                            | -





F-28







The following reconciles net increase in net assets resulting
from operations to taxable income for the years ended December 31, 2019 and December 31, 2018, and the period ended December 31, 2017:



|                                                                      |  | Year Ended December 31, 2019 |           |   | Year Ended December 31, 2018 |   |           | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 | 
|--------------------------------------------------------------------- |  | ---------------------------- | --------- | - | ---------------------------- | - | --------- | --------------------------------------------------------------------------------- | 
|Net increase (decrease) in net assets resulting from operations       |  | $                            | 3,169,648 |   |                              | $ | 1,164,513 |                                                                                   | 
|Net change in unrealized appreciation (depreciation) from investments |  |                              | (10,041   | ) |                              |   | 590,623   |                                                                                   | 
|Net realized losses                                                   |  |                              | 318,751   |   |                              |   | -         |                                                                                   | 
|Other book tax differences                                            |  |                              | (369,812  | ) |                              |   | 149,467   |                                                                                   | 
|Taxable income before deductions for distributions                    |  | $                            | 3,108,546 |   |                              | $ | 1,904,603 |                                                                                   | 



|                         |  | Year Ended December 31, 2019 |           |  | Year Ended December 31, 2018 |   |           | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 | 
|------------------------ |  | ---------------------------- | --------- |  | ---------------------------- | - | --------- | --------------------------------------------------------------------------------- | 
|Distributions paid from: |  |                              |           |  |                              |   |           |                                                                                   | 
|                         |  |                              |           |  |                              |   |           |                                                                                   | 
|Ordinary income          |  | $                            | 3,147,725 |  |                              | $ | 1,699,455 |                                                                                   | 
|Capital gains            |  |                              | —         |  |                              |   | —         |                                                                                   | 
|Return of Capital        |  |                              | —         |  |                              |   | —         |                                                                                   | 
|Total                    |  | $                            | 3,147,725 |  |                              | $ | 1,699,455 |                                                                                   | 



For the years ended December 31,
2019 and 2018, and the period ended December 31, 2017, the components of accumulated earnings on a tax basis were as
follows:



|                                                |  | Year Ended   |          |   | Year Ended   |   |          | For the Period May 3, 2017 (commencement of operations) through | 
|----------------------------------------------- |  | ------------ | -------- | - | ------------ | - | -------- | --------------------------------------------------------------- | 
|                                                |  | December 31, |          |   | December 31, |   |          | December 31,                                                    | 
|                                                |  | 2019         |          |   | 2018         |   |          | 2017                                                            | 
|Undistributed net investment income (loss)      |  | $            | 401,162  |   |              | $ | 136,522  |                                                                 | 
|Undistributed capital gains                     |  |              | —        |   |              |   | 246,350  |                                                                 | 
|Capital loss carryforward                       |  |              | (318,751 | ) |              |   | —        |                                                                 | 
|Other accumulated gain (loss)/dividends payable |  |              | (265,902 | ) |              |   | (200,145 | )                                                               | 
|Net unrealized appreciation                     |  |              | (308,879 | ) |              |   | (697,020 | )                                                               | 
|Total                                           |  | $            | (492,370 | ) |              | $ | (514,293 | )                                                               | 



Capital losses can be carried forward indefinitely to offset
future capital gains. As of December 31, 2019, the Company had short term loss carryforwards of $314,489 and long term loss carryforwards of $4,262.



As of December 31, 2019, the Company’s aggregate
unrealized appreciation and depreciation on investments based on cost for U.S. federal income tax purposes was as follows:



|                                                              |  | December 31, 2019 |            
|------------------------------------------------------------- |  | ----------------- | -----------
|Tax cost                                                      |  |                   | 101,846,603
|Gross unrealized appreciation                                 |  |                   | 794,415    
|Gross unrealized depreciation                                 |  |                   | (1,103,294 
|Net unrealized appreciation/(depreciation)
    on investments |  | $                 | (308,879   





F-29







The Company adopted FASB ASC Topic 740, Accounting for Uncertainty
in Income Taxes (“ASC 740”) as of December 31, 2018. ASC 740 provides guidance for how uncertain tax positions
should be recognized, measured, presented, and disclosed in the consolidated financial statements. 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. The Company recognizes
the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming
examination by tax authorities. As of December 31, 2019, management has analyzed the Company’s tax positions, and has
concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken in the Company’s
current year tax return. The Company identifies its major tax jurisdictions as U.S. Federal, New York State, and New York City.
The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits
will change materially in the next 12 months. Management’s determinations regarding ASC 740 may be subject to review and
adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and
interpretations thereof.



Note 11. Financial Highlights



The following per common share data has been derived from information
provided in the audited financial statements. The following is a schedule of financial highlights for the years ended December
31, 2019 and 2018, and the period from May 3, 2017 (commencement of operations) through December 31, 2017:



|                                                                                                        |  |                     |            |   |                                                   |   |            | For the Period    | 
|------------------------------------------------------------------------------------------------------- |  | ------------------- | ---------- | - | ------------------------------------------------- | - | ---------- | ----------------- | 
|                                                                                                        |  | For the Years Ended |            |   | May 3, 
2017 (commencement of operations) through |  
|                                                                                                        |  | December 31, 2019   |            |   | December 31, 
    2018                            |   |            | December 31, 2017 | 
|Per Common Share Operating Performance                                                                  |  |                     |            |   |                                                   |   |            |                   | 
|Net Asset Value, Beginning of Period                                                                    |  | $                   | 19.74      |   |                                                   | $ | 20.02      |                   | 
|                                                                                                        |  |                     |            |   |                                                   |   |            |                   | 
|Results of Operations:                                                                                  |  |                     |            |   |                                                   |   |            |                   | 
|Net
    Investment Income(1)                                                                            |  |                     | 1.37       |   |                                                   |   | 1.15       |                   | 
|Net
    Realized and Unrealized Gain (Loss) on Investments(1)(5)                                        |  |                     | (0.01      | ) |                                                   |   | (0.13      | )                 | 
|Net Increase (Decrease)
    in Net Assets Resulting from Operations                                     |  |                     | 1.36       |   |                                                   |   | 1.02       |                   | 
|                                                                                                        |  |                     |            |   |                                                   |   |            |                   | 
|Distributions to Common Stockholders                                                                    |  |                     |            |   |                                                   |   |            |                   | 
|Distributions from Net Investment Income                                                                |  |                     | (1.34      | ) |                                                   |   | (1.30      | )                 | 
|Return of Capital                                                                                       |  |                     | -          |   |                                                   |   | -          |                   | 
|Net Decrease in Net Assets Resulting from Distributions                                                 |  |                     | (1.34      | ) |                                                   |   | (1.30      | )                 | 
|                                                                                                        |  |                     |            |   |                                                   |   |            |                   | 
|Capital Share Transactions                                                                              |  |                     |            |   |                                                   |   |            |                   | 
|Issuance of Common Stock                                                                                |  |                     | -          |   |                                                   |   | -          |                   | 
|Net Increase (Decrease)
    Resulting from Capital Share Transactions                                   |  |                     | -          |   |                                                   |   | -          |                   | 
|Net Asset Value, End of Period                                                                          |  | $                   | 19.76      |   |                                                   | $ | 19.74      |                   | 
|                                                                                                        |  |                     |            |   |                                                   |   |            |                   | 
|Shares Outstanding, End of Period                                                                       |  |                     | 2,832,840  |   |                                                   |   | 1,867,420  |                   | 
|                                                                                                        |  |                     |            |   |                                                   |   |            |                   | 
|Ratio/Supplemental Data                                                                                 |  |                     |            |   |                                                   |   |            |                   | 
|Net assets, end of period                                                                               |  | $                   | 55,969,870 |   |                                                   | $ | 36,855,107 |                   | 
|Weighted-average shares outstanding                                                                     |  |                     | 2,350,674  |   |                                                   |   | 1,317,698  |                   | 
|Total Return(3)                                                                                         |  |                     | 7.13       | % |                                                   |   | 5.07       | %                 | 
|Portfolio turnover                                                                                      |  |                     | 84.6       | % |                                                   |   | 136.5      | %                 | 
|Ratio
    of operating expenses to average net assets without waiver and reimbursement(2)(4)            |  |                     | 8.83       | % |                                                   |   | 6.15       | %                 | 
|Ratio
    of operating expenses to average net assets with waiver and reimbursement(2)(4)               |  |                     | 7.39       | % |                                                   |   | 3.52       | %                 | 
|Ratio
    of net investment income (loss) to average net assets without waiver and
 reimbursement(2)(4) |  |                     | 5.41       | % |                                                   |   | 2.84       | %                 | 
|Ratio
    of net investment income (loss) to average net assets with waiver and
 reimbursement(2)(4)    |  |                     | 6.85       | % |                                                   |   | 5.47       | %                 | 



| | (1) | The per common
                                         share data was derived by using weighted average shares outstanding.
| | --- | ----------------------------------------------------------------------------------------------------------------------------

| | (2) | The ratios reflect
                                         an annualized amount.
| | --- | ---------------------------------------------------------------------------------

| | (3) | Total return is
                                         calculated as the change in net asset value (“NAV”) per share during the period,
                                         plus distributions per share (if any), divided by the beginning NAV per share. Total
                                         return is not annualized.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Includes interest
                                         expense of 2.92%, 0.53%, 0.23%, respectively, which is not subject to reimbursement by
                                         Flat Rock Global.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Realized and unrealized gains and losses per share in
this caption are balancing amounts necessary to reconcile the change in net asset value per share for the period, and may not
reconcile with the aggregate gains and losses in the Consolidated Statement of Operations due to share transactions during the
period.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-30







Note 12. Selected Quarterly Financial Data (Unaudited)



|                                                                                                             |  | For the Three Months Ended |          
|------------------------------------------------------------------------------------------------------------ |  | -------------------------- | ---------
|                                                                                                             |  | March 31,
    2019         |          
|                                                                                                             |  |                            |          
|Investment income                                                                                            |  | $                          | 1,562,580
|Net expenses                                                                                                 |  |                            | 816,583  
|Net investment income (loss)                                                                                 |  |                            | 745,997  
|Net realized gain (loss) on investments, and foreign
    currency transactions                               |  |                            | 407,483  
|Net unrealized gain (loss)
    on investments, foreign currency translations, and foreign currency contracts |  |                            | (464,240 
|Increase (decrease) in net
    assets resulting from operations                                              |  | $                          | 689,240  
|Net asset value per share as of the end of the
    quarter                                                   |  | $                          | 19.77    



|                                                                                                             |  | For the Three Months Ended |        
|------------------------------------------------------------------------------------------------------------ |  | -------------------------- | -------
|                                                                                                             |  | March 31,
    2018         |        
|                                                                                                             |  |                            |        
|Investment income                                                                                            |  | $                          | 415,523
|Net expenses                                                                                                 |  |                            | 145,498
|Net investment income (loss)                                                                                 |  |                            | 270,025
|Net realized gain (loss) on investments, and foreign
    currency transactions                               |  |                            | 36,834 
|Net unrealized gain (loss)
    on investments, foreign currency translations, and foreign currency contracts |  |                            | 41,998 
|Increase (decrease) in net
    assets resulting from operations                                              |  | $                          | 348,857
|Net asset value per share as of the end of the
    quarter                                                   |  | $                          | 20.03  



|                                                                                                             |  | For the Three Months Ended |      
|------------------------------------------------------------------------------------------------------------ |  | -------------------------- | -----
|                                                                                                             |  | June 30,
    2017*         |      
|                                                                                                             |  |                            |      
|Investment income                                                                                            |  | $                          | 685  
|Net expenses                                                                                                 |  |                            | 480  
|Net investment income (loss)                                                                                 |  |                            | 205  
|Net realized gain (loss) on investments, and foreign
    currency transactions                               |  |                            | -    
|Net unrealized gain (loss)
    on investments, foreign currency translations, and foreign currency contracts |  |                            | 362  
|Increase (decrease) in net
    assets resulting from operations                                              |  | $                          | 567  
|Net asset value per share as of the end of the
    quarter                                                   |  | $                          | 20.00



* Commenced operations on May 3, 2017





F-31







Note 13. Subsequent Events



The Company’s management has evaluated subsequent events
through the date of issuance of the financial statements included herein. There have been no subsequent events that require recognition
or disclosure in these financial statements except for the following:



Issuance of Common Stock



On January 29, 2020, the Company
issued and sold approximately 7,606 shares of its common stock at an aggregate purchase price of $150,000. The issuance of the
shares of common stock was exempt from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) and
Rule 506(b) of Regulation D thereof.



On March 2,
2020, the Company issued and sold 34,862 shares of its common stock at an aggregate
purchase price of $689,925. The issuance of the shares of common stock was exempt from
the registration requirements of the Securities Act, pursuant to Section 4(a)(2) and Rule 506(b) of Regulation D thereof.



Distributions



On November 12, 2019, the Company declared a distribution of
$0.114 per share, or $322,943, for holders of record as of January 24, 2020, which was paid on February 6, 2020.



On November 12, 2019, the Company declared a distribution of
$0.114 per share, or $322,863, for holders of record as of February 24, 2020, which was paid on March 6, 2020.



On January 8, 2020, following approval from the Board, the Company filed a tender offer to repurchase up to 141,245
Shares of the Company’s issued and outstanding common stock, which represented 5% of the issued and outstanding shares as
of January 6, 2020. The tender offer expired at 11:59 P.M., Central Time, on February 7, 2020 (the “Offer
Expiration Date”). As of the Offer Expiration Date, 11,009 Shares for a total of $217,583 were validly tendered
and withdrawn pursuant to the tender offer.





F-32







ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE



Not Applicable.



ITEM 9A. CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31,
2019, the end of the period covered by this Annual Report on Form 10-K.



The term “disclosure controls and procedures,”
as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company
in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and
principal financial officers, as appropriate to allow timely decisions regarding required disclosure.



Based on our evaluation, we believe that our disclosure controls
and procedures as of the date of our Annual Report on Form 10-K have been designed and are effective to provide reasonable assurance
that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms. We believe that a controls system, no matter
how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been
detected.



Internal Control Over Financial Reporting



Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Exchange Act.



In connection with the preparation of this annual report, our
management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control
over financial reporting as of December 31, 2019. In making that assessment, our management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 framework).



Changes in Internal Control over Financial Reporting



There have been no changes in our internal control over financial
reporting during our fiscal quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.



ITEM 9B. OTHER INFORMATION



None.





56







PART III



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The information required by this Item 10 is incorporated by
reference to the information contained in our definitive proxy statement, to be filed with the SEC within 120 days following the
end of our fiscal year.



ITEM 11. EXECUTIVE COMPENSATION



The information required by this Item 11 is incorporated by
reference to the information contained in our definitive proxy statement, to be filed with the SEC within 120 days following the
end of our fiscal year.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The information required by this Item 12 is incorporated by
reference to the information contained in our definitive proxy statement, to be filed with the SEC within 120 days following the
end of our fiscal year.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE



The information required by this Item 13 is incorporated by
reference to the information contained in our definitive proxy statement, to be filed with the SEC within 120 days following the
end of our fiscal year.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The information required by this Item 14 is incorporated by
reference to the information contained in our definitive proxy statement, to be filed with the SEC within 120 days following
the end of our fiscal year.





57







PART IV



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



(a) DOCUMENTS FILED
AS PART OF THIS REPORT



The
following is a list of our financial statements included in this Annual Report on Form 10-K under Item 8 of Part II hereof:



1.
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA



Index
to Financial Statements

|                                                                                                                                                                                            | Page
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                                                                            |     
|Report
    of Independent Registered Public Accounting Firm as of and for the year ended December 31, 2019                                                                                  | F-2 
|Report of the Predecessor Independent Registered Public Accounting Firm as of and for the year ended December 31, 2018 and the period ended December 31, 2017.                              | F-3 
|Consolidated
    Statements of Assets and Liabilities as of December 31, 2019 and 2018                                                                                                      | F-4 
|Consolidated
    Statements of Operations for the Years ended December 31, 2019 and 2018 and for the Period of May 3, 2017 (commencement
    of operations) to December 31, 2017            | F-5 
|Consolidated
    Statements of Changes in Net Assets for the Years ended December 31, 2019 and 2018 and for the Period of May 3, 2017
    (commencement of operations) to December 31, 2017 | F-6 
|Consolidated
    Statements of Cash Flows for the Years ended December 31, 2019 and 2018 and for the Period of May 3, 2017 (commencement
    of operations) to December 31, 2017            | F-7 
|Consolidated
    Schedules of Investments as of December 31, 2019 and 2018                                                                                                                  | F-8 
|Notes
    to Consolidated Financial Statements                                                                                                                                              | F-12





(b) EXHIBITS



|3.1  |  | Articles of Incorporation of Flat Rock Capital Corp. (Incorporated by reference to the initial filing of the Registration Statement on Form 10 (SEC File No. 000-55767) filed with the SEC on March 24, 2017.)                                                                                                                                                                                                           
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2  |  | Amended and Restated Articles of Incorporation (Incorporated by reference to Amendment No. 2 to the Registration Statement on Form 10 (SEC File No. 000-55767) filed with the SEC on May 19, 2017.)                                                                                                                                                                                                                      
|3.3  |  | Bylaws (Incorporated by reference to Amendment No. 1 to the Registration Statement on Form 10 (SEC File No. 000- 55767) filed with the SEC on May 1, 2017.)                                                                                                                                                                                                                                                              
|4.1  |  | Form of Subscription Agreement (Incorporated by reference to Amendment No. 2 to the Registration Statement on Form 10 (SEC File No. 000-55767) filed with the SEC on May 19, 2017.)                                                                                                                                                                                                                                      
|4.2  |  | Distribution Reinvestment Plan (Incorporated by reference to Form 8-K Exhibit 4.1 (SEC File No. 000-55767) filed with
the SEC on April 5, 2019.)                                                                                                                                                                                                                                                                         
|10.1 |  | Investment Advisory Agreement by and between Flat Rock Capital Corp. and Flat Rock Global, LLC, dated May 16, 2017 (Incorporated by reference to Amendment No. 2 to the Registration Statement on Form 10 (SEC File No. 000- 55767) filed with the SEC on May 19, 2017.)                                                                                                                                                 
|10.2 |  | Amendment No. 1 to Investment Advisory Agreement (Incorporated by reference to Amendment No. 3 to the Registration Statement on Form 10 (SEC File No. 000-55767) filed with the SEC on May 23, 2017.)                                                                                                                                                                                                                    
|10.3 |  | Administration Agreement (Incorporated by reference to Amendment No. 2 to the Registration Statement on Form 10 (SEC File No. 000-55767) filed with the SEC on May 19, 2017.)                                                                                                                                                                                                                                            
|10.4 |  | Custody Agreement by and between Flat Rock Capital Corp. and U.S. Bank National Association, dated May 3, 2017 (Incorporated by reference to Amendment No. 2 to the Registration Statement on Form 10 (SEC File No. 000-55767) filed with the SEC on May 1, 2017.)                                                                                                                                                       
|10.5 |  | Custody Agreement (Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, filed with the SEC on November 14, 2017.)                                                                                                                                                                                                                                        
|10.6 |  | Loan and Security Agreement among FRC Funding I, LLC as borrower, Flat Rock Capital Corp. as servicer, the Lenders party thereto, and State Bank and Trust Company as agent for the Lenders, dated October 12, 2018 (Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on October 18, 2018.)                                                                                  
|10.7 |  | First Amendment to Loan and Security Agreement by and among FRC Funding I, LLC as borrower, Flat Rock Capital Corp. as servicer, the Existing Lender party thereto, State Bank and Trust Company as agent for the Lenders and Hitachi Capital America Corp. as a New Lender, dated December 10, 2018 (Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on December 17, 2018.)
|10.8 |  | Second Amendment to Loan and Security Agreement (Incorporated by reference to Form 8-K (SEC File No. 000-55767) filed
with the SEC on July 3, 2019.)                                                                                                                                                                                                                                                                     





58







|14.1* |  | Code of Business Conduct and Ethics                                                                                                                                
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|21.1* |  | Subsidiaries of the Registrant                                                                                                                                     
|31.1* |  | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002
|31.2* |  | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002
|32.1* |  | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)            



| | * | Filed
herewith
| | - | --------------



ITEM 16. FORM 10-K SUMMARY



The Registrant has elected not to provide summary information.





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SIGNATURES



Pursuant to the requirements of section 13 or 15(d) 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.



|                      | FLAT ROCK CAPITAL CORP.
|--------------------- | -----------------------
|                      |                        
|Dated: March 18, 2020 | By:                    
|                      |                        
|                      |                        
|                      |                        



Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.



|Dated: March 18, 2020 | By: | /s/ Robert K. Grunewald                     
|--------------------- | --- | --------------------------------------------
|                      |     | Robert K. Grunewald                         
|                      |     | President and Chief Executive Officer       
|                      |     | (Principal Executive Officer)               
|                      |     |                                             
|Dated: March 18, 2020 | By: | /s/ Richard A. Petrocelli                   
|                      |     | Richard A. Petrocelli                       
|                      |     | Chief Financial Officer and                 
|                      |     | Chief Operating Officer                     
|                      |     | (Principal Financial and Accounting Officer)
|                      |     |                                             
|Dated: March 18, 2020 | By: | /s/ R. Scott Coolidge                       
|                      |     | R. Scott Coolidge                           
|                      |     | Director                                    
|                      |     |                                             
|Dated: March 18, 2020 | By: | /s/ Michael L. Schwarz                      
|                      |     | Michael L. Schwarz                          
|                      |     | Director                                    





60