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, 2018

☐ 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
    ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ☐

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 $24,132,000 on June 30, 2018.

There were 1,978,916 issued and outstanding shares of the
issuer’s common stock, $.001 par value per share, on March 12, 2019.

Documents Incorporated by Reference

Portions of the Registrant’s definitive Proxy Statement for the 2019 Annual Meeting of Stockholders,
which is expected to be filed no later than April 30, 2019, 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                                                                                    | 36  
|Item 2.    | Properties                                                                                                   | 36  
|Item 3.    | Legal Proceedings                                                                                            | 36  
|Item 4.    | Mine Safety Disclosures                                                                                      | 36  
|           |                                                                                                              |     
|           | PART II                                                                                                      |     
|Item 5.    | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 37  
|Item 6.    | Selected Financial Data                                                                                      | 38  
|Item 7.    | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 38  
|Item 7A.   | Quantitative and Qualitative Disclosures About Market Risk                                                   | 48  
|Item 8.    | Financial Statements and Supplementary Data                                                                  | F-1 
|Item 9.    | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         | 49  
|Item 9A.   | Controls and Procedures                                                                                      | 49  
|Item 9B.   | Other Information                                                                                            | 49  
|           |                                                                                                              |     
|           | PART III                                                                                                     |     
|Item 10.   | Directors, Executive Officers and Corporate Governance                                                       | 50  
|Item 11.   | Executive Compensation                                                                                       | 50  
|Item 12.   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               | 50  
|Item 13.   | Certain Relationships and Related Transactions, and Director Independence                                    | 50  
|Item 14.   | Principal Accounting Fees and Services                                                                       | 50  
|           |                                                                                                              |     
|           | PART IV                                                                                                      |     
|Item 15.   | Exhibits,
Financial Statements, and Schedules                                                                | 51  
|Item 16.   | Form 10-K Summary                                                                                            | 52  
|SIGNATURES | 53                                                                                                          



i


Table of Contents




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 ending 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, or 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 experience 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. 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 $30 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 March 12, 2019, our investment portfolio principal (excluding our investment in U.S. Treasury Bills) totaled
$71.0 million and consisted of $71.0 million, or 100%, in first lien senior secured debt.



1


Table of Contents




The following is our investment portfolio
of first lien senior secured debt as of March 12, 2019:



|Portfolio Company                            |  | Industry                                  |  | Principal |            |  | % of Total Assets | 
|-------------------------------------------- |  | ----------------------------------------- |  | --------- | ---------- |  | ----------------- | 
|Canngen Insurance Services, LLC              |  | Insurance Services                        |  | $         | 15,000,000 |  |                   | 
|ThreeBridge Solutions Term Loan              |  | IT Implementation                         |  |           | 5,456,700  |  |                   | 
|Mills Fleet Farms                            |  | Consumer Goods                            |  |           | 5,000,000  |  |                   | 
|Logibec Inc.                                 |  | Healthcare IT                             |  |           | 4,669,274  |  |                   | 
|Coastal Construction Products                |  | Construction & Building                   |  |           | 3,995,882  |  |                   | 
|AIS HoldCo, LLC                              |  | Insurance Services                        |  |           | 3,975,000  |  |                   | 
|World Insurance Associates, LLC              |  | Insurance Brokerage                       |  |           | 3,212,851  |  |                   | 
|Isagenix International LLC                   |  | Direct Selling                            |  |           | 2,925,000  |  |                   | 
|Bomgar Corporation                           |  | Computers & Electronics                   |  |           | 2,736,250  |  |                   | 
|Broder Bros., Co.                            |  | Wholesale                                 |  |           | 2,000,000  |  |                   | 
|Envision Healthcare, Inc.                    |  | Healthcare Services                       |  |           | 2,000,000  |  |                   | 
|Epic Piping                                  |  | Energy: Oil & Gas                         |  |           | 2,000,000  |  |                   | 
|Next Level Apparel, Inc.                     |  | Consumer Goods                            |  |           | 1,987,500  |  |                   | 
|World Insurance Associates, LLC Delayed Draw |  | Insurance Brokerage                       |  |           | 1,705,100  |  |                   | 
|VFH Parent (Virtu)                           |  | Banking, Finance, Insurance & Real Estate |  |           | 1,500,000  |  |                   | 
|Hill International, Inc.                     |  | Business Services                         |  |           | 1,477,500  |  |                   | 
|Idera, Inc.                                  |  | Computers & Electronics                   |  |           | 1,331,507  |  |                   | 
|American Dental Partners, Inc.               |  | Healthcare Services                       |  |           | 1,000,000  |  |                   | 
|Elo Touch Solutions                          |  | High Tech Industries                      |  |           | 1,000,000  |  |                   | 
|Millennium Trust Company                     |  | Banking, Finance, Insurance & Real Estate |  |           | 1,000,000  |  |                   | 
|ScribeAmerica (HealthChannels)               |  | Healthcare Services                       |  |           | 997,487    |  |                   | 
|MHVC Acquisition Corp (Magnolia/Peraton)     |  | Aerospace and Defense                     |  |           | 994,949    |  |                   | 
|NM Z Parent Inc (Zep Inc)                    |  | Chemicals & Allied Products               |  |           | 992,462    |  |                   | 
|MRO Holdings, Inc.                           |  | Transportation                            |  |           | 990,000    |  |                   | 
|Octave Music Group, Inc.                     |  | Broadcasting & Subscription               |  |           | 987,212    |  |                   | 
|GI Revelation Acquisition LLC                |  | Business Services                         |  |           | 746,873    |  |                   | 
|Deliver Buyer, Inc.                          |  | Capital Equipment                         |  |           | 497,475    |  |                   | 
|JP Intermediate Term Loan                    |  | Direct Selling                            |  |           | 493,750    |  |                   | 
|ThreeBridge Solutions Delayed Draw           |  | IT Implementation                         |  |           | 277,916    |  |                   | 
|Total first lien senior secured debt         |  |                                           |  | $         | 70,950,688 |  |                   | 





2


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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 as the President and Chief Investment Officer of Business Development
Corp. of America, or BDCA. During his tenure at BDCA, Mr. Grunewald grew the company from $2.5 million of assets under management
to $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 $429.1 billion in assets under management as of December 31, 2018, 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 will be 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.





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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,” shall be an incentive fee on capital gains earned on liquidated investments from our portfolio during
operations prior to our liquidation and shall be determined and payable in arrears as of the end of each calendar year (or
upon termination of the Advisory Agreement). This fee shall equal 15% of our incentive fee capital gains, which shall equal 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.



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 and which continues to constrain capital formation activities, 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.





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Table of Contents




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 to 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 credit 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 publicly traded and publicly registered, non-listed 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 will 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, we will have the ability to reduce our asset coverage ratio from 200% to 150% beginning May
30, 2019, which we believe will provide 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 Lenders agreed to provide us with a revolving
line of credit. 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.





As amended, the Loan Agreement provides
for $30 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).





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Pursuant to the terms of the Loan Agreement, the Borrowers granted 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 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 to invest in Senior Loans with 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 expects to set and monitor
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.





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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.





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Regulation as a Public 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 200%. This means that for every $100 of
net assets we have, we are able to borrow or issue senior securities in the amount of $100.



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.





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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



As a BDC, we generally must have 200% asset
coverage for our debt after incurring any new indebtedness, meaning that the total value of our assets must be at least twice
the amount of the debt (i.e., 50% leverage).





On March 23, 2018, President Trump signed into law the 2018
omnibus spending bill, which included the Small Business Credit Availability Act 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 the following conditions are met:



|● | the BDC adopts a 150% asset coverage by either
|- | ----------------------------------------------



| | ○ | a shareholder approval of more than 50% of the votes cast at a shareholder meeting at which a quorum is present, to become effective
on the first day after the date of such approval; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ○ | a vote of a majority of the non-interested directors of the BDC, to become effective on the date that is one year of the date
of such approval; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



|● | within five business days of such approval
|- | ------------------------------------------



| | ○ | the BDC makes disclosures regarding such approval in any filing submitted to the SEC and provides a notice on the BDC’s
website; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | ○ | the BDC makes additional disclosures in its periodic reports, including the amount of outstanding senior securities (and associated
asset coverage ratio) it holds as of the date of the most recent financial statements included in the filing; information regarding
the approval of the asset coverage percentage and the date of such approval; and the risk associated with holding senior securities
described in the filing to the extent that such risk is incurred by the BDC.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, BDCs that are not listed on
a national securities exchange, such as the Company, are required to offer to repurchase from each shareholder, as of the asset
coverage percentage approval date, all of the shares that are held by its shareholders (with 25% of those shares to be repurchased
in four separate tender offers following the approval date).





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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 will be eligible to incur additional leverage beginning
on May 30, 2019 in accordance with the provisions of the Small Business Credit Availability Act.



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, is at least equal to 200% 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 200% 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 does 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 incorporated by reference to this annual report on Form 10-K.



You may also review our code of ethics
at the SEC’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference
Room by calling the SEC at (202) 551-8090. You may also obtain copies of the codes of ethics, after paying a duplicating fee,
by electronic request at the following email address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section,
100 F Street, N.E., Washington, D.C. 20549.



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Table of Contents




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 (once we cease to be an emerging growth company under the
                                         JOBS Act or, if later, for the year following our first annual report required to be
                                         filed with the SEC), 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 significant changes in our internal controls 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 will be 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.



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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. Copies of these reports, proxy and
information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C.

20549-0102.



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.



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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 our “net capital gain,”
generally defined as 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 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
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | ● | 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.





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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 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.





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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% 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.





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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.





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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.



Risks Relating to Our Business and Structure



Our Adviser has limited experience managing a
BDC or a RIC.



While Messrs. Grunewald and Petrocelli
have served as executive officers for other BDCs, our Adviser has limited experience managing a BDC or a RIC. Therefore, there
is a risk that our Adviser may not be able to successfully operate our business or achieve our investment objective. As a result,
an investment in our shares of common stock may entail more risk than the shares of a comparable company with a substantial operating
history.



The 1940 Act and the Code
impose numerous constraints on the operations of BDCs and RICs that do not apply to the other types of investment vehicles.
For example, under the 1940 Act, BDCs are required to invest at least 70% of their total assets primarily in securities
of qualifying U.S. private or thinly traded public companies. Moreover, qualification for RIC tax treatment under subchapter
M of the Code requires satisfaction of distribution, source-of-income, diversification and other requirements. The failure
to comply with these provisions in a timely manner could prevent us from qualifying as a BDC or a RIC or could force us to
pay unexpected taxes and penalties, which could be material.





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We are 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. More recently, the macroeconomic environment, including
concerns regarding the Chinese economy, declines in commodity prices and increasing volatility, has led to, and may continue to
lead to, decreased prices in the broadly syndicated credit market as investors re-price credit risk. While our investments will
generally not be 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.





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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. We cannot assure you that we will pay distributions to our stockholders in the future. 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.



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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 the fact 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, which may be without the benefit of an opinion of third-party
valuation experts 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.





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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 will have 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.



Terrorist attacks, acts of war or natural disasters
may, impact the businesses in which we invest and harm our business, operating results
and financial condition.



Terrorist acts, acts of war or natural
disasters may disrupt our operations, as well as the operations of the businesses in which we invest. Such acts have created,
and continue to create, economic and political uncertainties and may contribute to global economic instability. Future terrorist
activities, military or security operations, or natural disasters could further weaken the domestic/global economies and create
additional uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could
have a material adverse impact on our business, operating results and financial condition. Losses from terrorist attacks and natural
disasters are generally uninsurable.





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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 managers 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.





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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 allow our Adviser to earn increased 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.



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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 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 “Regulation as a Public 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 might 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 200%
after such incurrence or issuance. See “Risks Relating to Debt Financing” for risk disclosures related to our
ability, effective May 30, 2019, to be subject to a modified asset coverage of 150%. 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. As a BDC, therefore, we intend to continuously issue equity at a rate more frequent than our privately owned competitors,
which may lead to greater stockholder dilution.





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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 the 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 private equity 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.



Investment 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 bonds,” 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” or “junk bonds,”
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.





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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.





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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.



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.



We have entered into hedging transactions
and may continue to seek to hedge against interest rate and currency exchange rate fluctuations and credit risk by using structured
financial instruments such as futures, options, swaps and forward contracts, subject to the requirements of the 1940 Act. Use
of structured financial instruments for hedging purposes may present significant risks, including the risk of loss of the amounts
invested. Defaults by the other party to a hedging transaction can result in losses in the hedging transaction. Hedging activities
also involve the risk of an imperfect correlation between the hedging instrument and the asset being hedged, which could result
in losses both on the hedging transaction and on the instrument being hedged. Use of hedging activities may not prevent significant
losses and could increase our losses. Further, hedging transactions may reduce cash available to pay distributions to our stockholders.



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.





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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.



On July 27, 2017, the United Kingdom’s
Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear
if at that time whether or not LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that
it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering
committee comprised of large US financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated
by short term repurchase agreements, backed by Treasury securities. The future of LIBOR at this time is uncertain. If LIBOR ceases
to exist, we may need to renegotiate the credit agreements extending beyond 2021 with our portfolio companies that utilize LIBOR
as a factor in determining the interest rate to replace LIBOR with the new standard that is established.



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.





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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 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 intend to 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.





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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 may 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 accounting conditions are met, borrowers on such securities could still default when
                                         our’s actual collection is expected to occur at the maturity of the obligation.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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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 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.





Recent
legislation will allow 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.



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.
As a result, the asset coverage ratio test applicable to us will be decreased from 200% to 150%, effective May 30, 2019. 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. Our stockholders submitted requests to have an aggregate of 20,000 shares repurchased by us through
the tender offer process, and we repurchased all of these shares for an aggregate of $400,600, or $20.03 per share. 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 will be able to increase our leverage up to an amount
that reduces our asset coverage ratio from 200% to 150% beginning on May 30, 2019.



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.





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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.



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.



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.



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.





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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.
| | - | ------------------------------------------------------------------------



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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.



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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. While the outcome of these legal proceedings cannot
be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition
or results of operations.



ITEM 4. MINE SAFETY DISCLOSURES



None.



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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 4, 2019:



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



As of March 4, 2019, we had 461 record
holders of our common stock.



Distributions



|Declaration |  | Record     |  | Distribution |       |  | Payment |           | Distribution |  
|----------- |  | ---------- |  | ------------ | ----- |  | ------- | --------- | ------------ | -
|Date        |  | Date       |  | Per Share    |       |  | Date    |           | Payment      |  
|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  |              |  
|            |  |            |  |              |       |  |         |           |              | $



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.



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 may retain one are more 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.



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ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated
financial data for the year ended December 31, 2018 and for the period from May 3 (commencement of operations) to December
31, 2017, is derived from our consolidated financial statements which have been audited by KPMG LLP, our independent registered
public accounting firm.

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.



|                                                       |  | For the Year Ended December 31, 2018 |            |   | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 |  
|------------------------------------------------------ |  | ------------------------------------ | ---------- | - | --------------------------------------------------------------------------------- | -
|Total investment income                                |  | $                                    | 2,478,527  |   |                                                                                   | $
|Total expenses                                         |  |                                      | 1,697,528  |   |                                                                                   |  
|Less: Management fee waiver                            |  |                                      | (625,782   | ) |                                                                                   |  
|Less: Expense reimbursement                            |  |                                      | (101,939   | ) |                                                                                   |  
|Net expenses                                           |  |                                      | 969,807    |   |                                                                                   |  
|Net investment income                                  |  |                                      | 1,508,720  |   |                                                                                   |  
|Net realized gains (losses) on investments             |  |                                      | 246,416    |   |                                                                                   |  
|Net unrealized gains (losses) on investments           |  |                                      | (590,623   | ) |                                                                                   |  
|Net increase in net assets resulting from operations   |  | $                                    | 1,164,513  |   |                                                                                   | $
|                                                       |  |                                      |            |   |                                                                                   |  
|Per share information - basic and diluted              |  |                                      |            |   |                                                                                   |  
|Net investment income (loss)                           |  | $                                    | 1.14       |   |                                                                                   | $
|Net realized and unrealized gain (loss) on investments |  |                                      | (0.13      | ) |                                                                                   |  
|Net increase in net assets resulting from operations   |  |                                      | 1.01       |   |                                                                                   |  
|Distributions from net investment income               |  | $                                    | (1.30      | ) |                                                                                   | $
|                                                       |  |                                      |            |   |                                                                                   |  
|Balance sheet data:                                    |  |                                      |            |   |                                                                                   |  
|Total assets                                           |  | $                                    | 78,534,264 |   |                                                                                   | $
|Net assets                                             |  | $                                    | 36,855,107 |   |                                                                                   | $
|                                                       |  |                                      |            |   |                                                                                   |  
|Other data:                                            |  |                                      |            |   |                                                                                   |  
|Total return based on net asset value                  |  |                                      | 5.07       | % |                                                                                   |  
|Number of portfolio company investments at period end  |  |                                      | 23         |   |                                                                                   |  
|Total portfolio company investments for the period     |  | $                                    | 61,194,099 |   |                                                                                   | $
|Proceeds from sales and prepayments of investments     |  | $                                    | 45,332,922 |   |                                                                                   | $





Recent Sales of Unregistered Securities



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. 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.

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;                                                                                                                                                                                                                                               



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| | ● | 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



We are a recently-organized 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 Investment Company Act of 1940, as
amended (“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 recently-formed 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. 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.



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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 NAV, 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 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;                                                                                                 



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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. Flat Rock Global has no obligation
to reimburse any portion of our expenses but has indicated that it expects to continue such reimbursements until it deems that
we have achieved economies of scale sufficient to ensure that we bear a reasonable level of expenses in relation to our 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, 2018, the reimbursement totaled $101,939, which consisted of audit, fund accounting, fund administration,
insurance, legal, valuation and other fees. For the 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.



Portfolio and Investment Activity



As of December 31, 2018, our weighted average total yield of
debt and income producing securities at fair value was 9.17%, and our weighted average total yield of debt and income producing
securities at amortized cost was 9.16%.



As of December 31, 2018, we had 25 investments
in 23 portfolio companies with an aggregate fair value of approximately $61.2 million.



Our investment activity for the year
ended December 31, 2018 and for the period May 3, 2017 (commencement of operations) to December 31, 2017 is presented below
(information presented herein is at amortized cost unless otherwise indicated).



|                                                                          |  | For the Year Ended December 31, 2018 |             |   | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 |  
|------------------------------------------------------------------------- |  | ------------------------------------ | ----------- | - | --------------------------------------------------------------------------------- | -
|                                                                          |  |                                      |             |   |                                                                                   |  
|New investments:                                                          |  |                                      |             |   |                                                                                   |  
|Gross investments                                                         |  | $                                    | 87,520,229  |   |                                                                                   | $
|Less: sold investments                                                    |  |                                      | (45,045,762 | ) |                                                                                   |  
|Net new investments                                                       |  |                                      | 42,474,467  |   |                                                                                   |  
|                                                                          |  |                                      |             |   |                                                                                   |  
|Principal amount of investments funded:                                   |  |                                      |             |   |                                                                                   |  
|First-lien senior secured debt investments                                |  | $                                    | 87,520,229  |   |                                                                                   | $
|Other senior secured debt investments                                     |  |                                      | -           |   |                                                                                   |  
|Total principal amount of investments funded                              |  |                                      | 87,520,229  |   |                                                                                   |  
|                                                                          |  |                                      |             |   |                                                                                   |  
|Principal amount of investments sold:                                     |  |                                      |             |   |                                                                                   |  
|First-lien senior secured debt investments                                |  |                                      | 45,045,762  |   |                                                                                   |  
|Other senior secured debt investments                                     |  |                                      | -           |   |                                                                                   |  
|Total principal amount of investments sold or repaid                      |  |                                      | 45,045,762  |   |                                                                                   |  
|                                                                          |  |                                      |             |   |                                                                                   |  
|Number of new investment commitments                                      |  |                                      | 18          |   |                                                                                   |  
|Average new investment commitment amount                                  |  | $                                    | 2,359,693   |   |                                                                                   | $
|Weighted average maturity for new investment commitments                  |  |                                      | 5.6 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              |  |                                      | 8.65        | % |                                                                                   |  
|Weighted average spread LIBOR of new floating rate investment commitments |  |                                      | 6.09        | % |                                                                                   |  
|Weighted average interest rate on investment sold or paid down            |  |                                      | 6.00        | % |                                                                                   |  



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As of December 31, 2018 and December 31, 2017, our investments
consisted of the following:





|                                   |  | December 31, 2018 |            |  | December 31, 2017 |  
|---------------------------------- |  | ----------------- | ---------- |  | ----------------- | -
|                                   |  | Amortized         |            |  | Fair              |  
|                                   |  | Cost              |            |  | Value             |  
|First-lien senior secured debt     |  | $                 | 61,888,480 |  |                   | $
|U.S. Government Securities         |  |                   | 14,999,107 |  |                   |  
|Forward foreign currency contracts |  |                   | -          |  |                   |  
|Total Investments                  |  | $                 | 76,887,587 |  |                   | $





The table below describes investments by industry composition
based on fair value as of December 31, 2018 and December 31, 2017:





|                                   |  | December 31, 2018 |       |   | December 31, 2017 | 
|---------------------------------- |  | ----------------- | ----- | - | ----------------- | 
|                                   |  |                   |       |   |                   | 
|Insurance Services                 |  |                   | 24.6  | % |                   | 
|U.S. Government Securities         |  |                   | 19.6  | % |                   | 
|Consumer Goods                     |  |                   | 9.0   | % |                   | 
|IT Implementation                  |  |                   | 7.4   | % |                   | 
|Healthcare IT                      |  |                   | 5.9   | % |                   | 
|Computers & Electronics            |  |                   | 5.2   | % |                   | 
|Construction & Building            |  |                   | 5.2   | % |                   | 
|Healthcare Services                |  |                   | 5.0   | % |                   | 
|Direct Selling                     |  |                   | 4.3   | % |                   | 
|Insurance Brokerage                |  |                   | 3.6   | % |                   | 
|Business Services                  |  |                   | 2.9   | % |                   | 
|Transportation                     |  |                   | 1.3   | % |                   | 
|Broadcasting & Subscription        |  |                   | 1.3   | % |                   | 
|Aerospace and Defense              |  |                   | 1.3   | % |                   | 
|High Tech Industries               |  |                   | 1.2   | % |                   | 
|Chemicals & Allied Products        |  |                   | 1.1   | % |                   | 
|Capital Equipment                  |  |                   | 0.6   | % |                   | 
|Forward Foreign Currency Contracts |  |                   | 0.5   | % |                   | 
|Consumer Services                  |  |                   | 0.0   | % |                   | 
|Federal Services                   |  |                   | 0.0   | % |                   | 
|Entertainment & Leisure            |  |                   | 0.0   | % |                   | 
|Total                              |  |                   | 100.0 | % |                   | 



* Less than 0.5%.



The table below describes investments by geographic composition
based on fair value as of December 31, 2018 and December 31, 2017:





|                           |  | December 31, 2018 |       |   | December 31, 2017 | 
|-------------------------- |  | ----------------- | ----- | - | ----------------- | 
|                           |  |                   |       |   |                   | 
|United States:             |  |                   |       |   |                   | 
|West                       |  |                   | 27.0  | % |                   | 
|U.S. Government Securities |  |                   | 19.7  | % |                   | 
|Northeast                  |  |                   | 14.4  | % |                   | 
|Midwest                    |  |                   | 13.9  | % |                   | 
|Southeast                  |  |                   | 12.1  | % |                   | 
|South                      |  |                   | 7.0   | % |                   | 
|Canada                     |  |                   | 5.9   | % |                   | 
|Total                      |  |                   | 100.0 | % |                   | 



The table below shows the weighted average yields and interest
rate of our debt investments at fair value as of December 31, 2018 and December 31, 2017:



|                                                                       |  | December 31, 2018 |      |   | December 31, 2017 | 
|---------------------------------------------------------------------- |  | ----------------- | ---- | - | ----------------- | 
|Weighted average total yield of debt and income producing securities   |  |                   | 9.18 | % |                   | 
|Weighted average interest rate of debt and income producing securities |  |                   | 8.73 | % |                   | 
|Weighted average spread over LIBOR of all floating rate investments    |  |                   | 6.24 | % |                   | 





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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, 2018 and December 31, 2017.



|                  |  | December 31, 2018 |            |  | December 31, 2017 | 
|----------------- |  | ----------------- | ---------- |  | ----------------- | 
|                  |  |                   |            |  | Percentage        | 
|                  |  | Investments at    |            |  | of Total          | 
|Investment Rating |  | Fair Value        |            |  | Portfolio         | 
|2                 |  | $                 | 75,686,369 |  |                   | 
|3                 |  |                   | 876,642    |  |                   | 
|Total             |  | $                 | 76,563,011 |  |                   | 





Results of Operations



We are a recently-formed entity that commenced
our principal operations on May 3, 2017. Therefore, the following comparisons of operating results to the period ended December
31, 2017 is not for a full 12-month period.





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



|                                                     |  | For the Year Ended December 31, 2018 |           |   | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 |  
|---------------------------------------------------- |  | ------------------------------------ | --------- | - | --------------------------------------------------------------------------------- | -
|Total Investment Income                              |  | $                                    | 2,478,527 |   |                                                                                   | $
|Less: Net Expenses                                   |  |                                      | 969,807   |   |                                                                                   |  
|Net Investment Income                                |  |                                      | 1,508,720 |   |                                                                                   |  
|Net realized gains (losses)                          |  |                                      | 246,416   |   |                                                                                   |  
|Net unrealized gains (losses)                        |  |                                      | (590,623  | ) |                                                                                   |  
|                                                     |  |                                      |           |   |                                                                                   |  
|Net increase in net assets resulting from operations |  | $                                    | 1,164,513 |   |                                                                                   | $



Investment Income



Investment income for the year ended December
31, 2018 and for the period May 3, 2017 (commencement of operations) through December 31, 2017 was as follows:





|                                 |  | For
                                         the Year Ended December 31, 2018 |           |  | For
                                         the Period May
                                         3,
                                                            2017 (commencement
                                         of operations) through December
                                         31, 2017 |  
|-------------------------------- |  | ----------------------------------------------------------------------------- | --------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|Interest income from investments |  | $                                                                             | 2,369,096 |  |                                                                                                                                                                                                                                                                                                                   | $
|Other income                     |  |                                                                               | 109,431   |  |                                                                                                                                                                                                                                                                                                                   |  
|Total investment income          |  | $                                                                             | 2,478,527 |  |                                                                                                                                                                                                                                                                                                                   | $



Total investment income increased to $2.5 million for 2018 compared $0.4 million for 2017. The increase was driven by increased
total assets of $78.5 million at December 31, 2018 from $31.1 million at December 31, 2017 and increased yield on the portfolio
of 9.18% on December 31, 2018 compared to 7.99% in on December 31, 2017.



Expenses



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





|                         |  | For the Year Ended December 31, 2018 |           |   | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 |  
|------------------------ |  | ------------------------------------ | --------- | - | --------------------------------------------------------------------------------- | -
|Management fees          |  | $                                    | 625,782   |   |                                                                                   | $
|Incentive fees           |  |                                      | -         |   |                                                                                   |  
|Other operating expenses |  |                                      | 1,071,746 |   |                                                                                   |  
|Management fee waiver    |  |                                      | (625,782  | ) |                                                                                   |  
|Expense Reimbursement    |  |                                      | (101,939  | ) |                                                                                   |  
|Net Expenses             |  | $                                    | 969,807   |   |                                                                                   | $



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.



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Net expenses for the period May 3, 2017
(commencement of operations) through December 31, 2017 were $84,220, which consisted of $233,070 in management fees, $12,368 in
incentive fees, $407,946 in professional fees, $16,017 in interest and debt financing 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.



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. In order to meet the diversification tests required to qualify as a RIC, the Company, on December 31, 2017, acquired $29,000,000
in face value of short-term U.S. Treasury Bills. This transaction had the effect of increasing management fees payable to
the Adviser.



Net 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 year ended December 31, 2018 and for the period May 3, 2017
(commencement of operations) through December 31, 2017, net unrealized gains (losses) on our investment portfolio were comprised
of the following:



|                                             |  | For the Year Ended December 31, 2018 |          |   | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 |  
|-------------------------------------------- |  | ------------------------------------ | -------- | - | --------------------------------------------------------------------------------- | -
|Net unrealized gains (losses) on investments |  | $                                    | (590,623 | ) |                                                                                   | $
|Net unrealized gains                         |  | $                                    | (590,623 | ) |                                                                                   | $



The unrealized losses are largely attributable to four liquid loans that traded down in the fourth quarter of 2018. The four
loans, American Dental Partners, Envision Healthcare, Isagenix International, and NM Z Parent Inc. generated losses of $470,000.



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, 2018, we sold 1,867,233 shares of common stock for gross proceeds of approximately
$37.4 million. As of December 31, 2018, we had cash and cash equivalents of $1.6 million. As of December 31, 2018, we had $23.7
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 200%. If this ratio declines below 200%, 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. The SBCAA permits a BDC to reduce its asset coverage ratio from 200% to 150% so long as such BDC complies with certain
requirements contained within the SBCAA. 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. As a result of the SBCAA, the actions taken by our Board and the
satisfaction of the requirement that we provide our stockholders the opportunity to have their shares repurchased through
four separate tender offers, we will be able to increase our leverage up to an amount that reduces our asset coverage ratio from 200% to
150%, beginning on May 30, 2019.



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.





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Capital Contributions



Duringthe
year ended December 31, 2018, we issued and sold 854,788 shares of our common stock at an aggregate purchase price of
approximately $17.1 million.



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 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.



As amended, the Loan Agreement provides
for $30.0 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 beginning with our
initial monthly distribution declared by our Board on August 25, 2017, which 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 qualify annually thereafter, 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.





46


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The following table reflects the cash distributions per share
that we declared and paid on our common stock during the year ended December 31, 2018:





|            |  |            |  | Distribution |       |  |         |           |              |  
|----------- |  | ---------- |  | ------------ | ----- |  | ------- | --------- | ------------ | -
|Declaration |  | Record     |  | Per          |       |  | Payment |           | Distribution |  
|Date        |  | Date       |  | Share        |       |  | Date    |           | Payment      |  
|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  |              |  
|            |  |            |  |              |       |  |         |           |              | $



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 will
be 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.





47


Table of Contents




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.



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 amortized 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, 2018 is as follows:



|                |  |               |  |  | Payments Due By Period |           
|--------------- |  | ------------- |  |  | ---------------------- | ----------
|                |  | Maturity Date |  |  | Total                  |           
|Credit facility |  | 10/12/2022    |  |  | $                      | 23,668,554



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, 2018, all of the investments in our portfolio
were at floating rates.





48


Table of Contents




ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Index
to Consolidated Financial Statements





|                                                                                                                                                                                            | Page
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                                                                            |     
|Report
    of Independent Registered Public Accounting Firm                                                                                                                                 | F-2 
|Consolidated
    Statements     of Assets and Liabilities as of December 31, 2018 and 2017                                                                                                  | F-3 
|Consolidated
    Statements     of Operations for the Year ended December 31, 2018 and for the Period May 3, 2017 (Commencement of Operations)
    through December     31, 2017            | F-4 
|Consolidated
    Statements     of Changes in Net Assets for the Year ended December 31, 2018 and for the Period May 3, 2017 (Commencement of
    Operations)     through December 31, 2017 | F-5 
|Consolidated
    Statements     of Cash Flows for the Year ended December 31, 2018 and for the Period May 3, 2017 (Commencement of Operations)
    through December     31, 2017            | F-6 
|Consolidated
    Schedules     of Investments as of December 31, 2018 and 2017                                                                                                              | F-7 
|Notes
    to Consolidated Financial Statements                                                                                                                                              | F-11



F-1


Table of Contents








| | 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-2


Table of Contents




Flat
Rock Capital Corp.

Consolidated
Statements of Assets and Liabilities



|                                                                                                                             |  | December 31, 2018 |            |   | December 31, 2017 |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | -
|Assets:                                                                                                                      |  |                   |            |   |                   |  
|Non-controlled investments, at fair value (amortized cost $76,887,587 and $27,416,962, respectively)                         |  | $                 | 76,193,199 |   |                   | $
|Cash and cash equivalents                                                                                                    |  |                   | 1,179,518  |   |                   |  
|Unrealized appreciation on forward foreign currency contracts                                                                |  |                   | 369,812    |   |                   |  
|Receivables:                                                                                                                 |  |                   |            |   |                   |  
|Investment securities sold                                                                                                   |  |                   | -          |   |                   |  
|Paydowns receivable                                                                                                          |  |                   | 205,831    |   |                   |  
|Subscriptions receivable                                                                                                     |  |                   | -          |   |                   |  
|Due from investment adviser                                                                                                  |  |                   | 89,849     |   |                   |  
|Interest                                                                                                                     |  |                   | 421,055    |   |                   |  
|Prepaid expenses and other assets                                                                                            |  |                   | 75,000     |   |                   |  
|Total Assets                                                                                                                 |  | $                 | 78,534,264 |   |                   | $
|                                                                                                                             |  |                   |            |   |                   |  
|Liabilities:                                                                                                                 |  |                   |            |   |                   |  
|Credit facility, net                                                                                                         |  | $                 | 23,233,011 |   |                   | $
|Payables:                                                                                                                    |  |                   |            |   |                   |  
|Investment securities purchased                                                                                              |  |                   | 17,946,607 |   |                   |  
|Distributions payable                                                                                                        |  |                   | 200,145    |   |                   |  
|Unrealized depreciation on forward foreign currency contracts                                                                |  |                   | -          |   |                   |  
|Incentive fee payable                                                                                                        |  |                   | -          |   |                   |  
|Accrued other general and administrative expenses                                                                            |  |                   | 299,394    |   |                   |  
|Total Liabilities                                                                                                            |  | $                 | 41,679,157 |   |                   | $
|                                                                                                                             |  |                   |            |   |                   |  
|Commitments and contingencies (Note 8)                                                                                       |  |                   |            |   |                   |  
|                                                                                                                             |  |                   |            |   |                   |  
|Net Assets:                                                                                                                  |  |                   |            |   |                   |  
|Preferred shares, $0.001 par value; 25,000,000 shares authorized; 0 issued and outstanding                                   |  | $                 | -          |   |                   | $
|Common Shares, $0.001 par value; 125,000,000 shares authorized; 1,867,233 and 1,032,445 issued and outstanding, respectively |  |                   | 1,867      |   |                   |  
|Additional paid-in capital                                                                                                   |  |                   | 37,367,533 |   |                   |  
|Total distributable earnings                                                                                                 |  |                   | (514,293   | ) |                   |  
|Total Net Assets                                                                                                             |  | $                 | 36,855,107 |   |                   | $
|Total Liabilities and Net Assets                                                                                             |  | $                 | 78,534,264 |   |                   | $
|Net Asset Value Per Share                                                                                                    |  | $                 | 19.74      |   |                   | $



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



F-3


Table of Contents




Flat
Rock Capital Corp.

Consolidated Statements
of Operations



|                                                                        |  | For the Year Ended December 31, 2018 |           |   | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 |  
|----------------------------------------------------------------------- |  | ------------------------------------ | --------- | - | --------------------------------------------------------------------------------- | -
|Income:                                                                 |  |                                      |           |   |                                                                                   |  
|Investment income from non-controlled, non-affiliated investments:      |  |                                      |           |   |                                                                                   |  
|Interest income                                                         |  | $                                    | 2,369,096 |   |                                                                                   | $
|Other income                                                            |  |                                      | 109,431   |   |                                                                                   |  
|Total investment income from non-controlled, non-affiliated investments |  |                                      | 2,478,527 |   |                                                                                   |  
|Total Investment Income                                                 |  |                                      | 2,478,527 |   |                                                                                   |  
|                                                                        |  |                                      |           |   |                                                                                   |  
|Expenses:                                                               |  |                                      |           |   |                                                                                   |  
|Management fees                                                         |  |                                      | 625,782   |   |                                                                                   |  
|Professional fees                                                       |  |                                      | 452,407   |   |                                                                                   |  
|Incentive fees                                                          |  |                                      | -         |   |                                                                                   |  
|Interest and debt financing expenses                                    |  |                                      | 180,601   |   |                                                                                   |  
|Other general and administrative expenses                               |  |                                      | 438,738   |   |                                                                                   |  
|Total Expenses                                                          |  |                                      | 1,697,528 |   |                                                                                   |  
|Less: Management fee waiver (Note 3)                                    |  |                                      | (625,782  | ) |                                                                                   |  
|Less: Expense reimbursement (Note 3)                                    |  |                                      | (101,939  | ) |                                                                                   |  
|Net expenses                                                            |  |                                      | 969,807   |   |                                                                                   |  
|Net Investment Income (Loss)                                            |  |                                      | 1,508,720 |   |                                                                                   |  
|                                                                        |  |                                      |           |   |                                                                                   |  
|Realized and Unrealized Gains (Losses) on Investments                   |  |                                      |           |   |                                                                                   |  
|Net realized gains (losses):                                            |  |                                      |           |   |                                                                                   |  
|Non-controlled, non-affiliated investments                              |  |                                      | 252,230   |   |                                                                                   |  
|Foreign currency transactions                                           |  |                                      | (5,814    | ) |                                                                                   |  
|Total Net Realized Gains (Losses)                                       |  |                                      | 246,416   |   |                                                                                   |  
|Net unrealized gains (losses):                                          |  |                                      |           |   |                                                                                   |  
|Non-controlled, non-affiliated investments                              |  |                                      | (602,720  | ) |                                                                                   |  
|Foreign currency translation                                            |  |                                      | (395,856  | ) |                                                                                   |  
|Forward foreign currency contracts (Note 2)                             |  |                                      | 407,953   |   |                                                                                   |  
|Total Net Unrealized Gains (Losses)                                     |  |                                      | (590,623  | ) |                                                                                   |  
|Total Realized and Unrealized Gains (Losses)                            |  |                                      | (344,207  | ) |                                                                                   |  
|Net Increase in Net Assets Resulting from Operations                    |  | $                                    | 1,164,513 |   |                                                                                   | $
|Earnings Per Share - Basic and Diluted                                  |  | $                                    | 0.88      |   |                                                                                   | $
|Weighted Average Shares Outstanding - Basic and Diluted                 |  |                                      | 1,317,698 |   |                                                                                   |  



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



F-4


Table of Contents




Flat
Rock Capital Corp.

Consolidated Statements
of Changes in Net Assets



|                                                                                                            |  | For the Year Ended December 31, 2018 |            |   | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 |  
|----------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ---------- | - | --------------------------------------------------------------------------------- | -
|Increase in Net Assets Resulting from Operations:                                                           |  |                                      |            |   |                                                                                   |  
|Net investment income                                                                                       |  | $                                    | 1,508,720  |   |                                                                                   | $
|Net realized gains (losses) on investments and foreign currency transactions                                |  |                                      | 246,416    |   |                                                                                   |  
|Net unrealized gains (losses) on investments, foreign currency translations, and foreign currency contracts |  |                                      | (590,623   | ) |                                                                                   |  
|Net Increase in Net Assets Resulting from Operations                                                        |  |                                      | 1,164,513  |   |                                                                                   |  
|                                                                                                            |  |                                      |            |   |                                                                                   |  
|Decrease in Net Assets Resulting from Stockholder Distributions                                             |  |                                      |            |   |                                                                                   |  
|Net dividends and distributions to stockholders                                                             |  |                                      | (1,699,455 | ) |                                                                                   |  
|Return of capital                                                                                           |  |                                      | -          |   |                                                                                   |  
|Net Decrease in Net Assets Resulting from Stockholder Distributions                                         |  |                                      | (1,699,455 | ) |                                                                                   |  
|                                                                                                            |  |                                      |            |   |                                                                                   |  
|Increase in Net Assets Resulting from Capital Share Transactions                                            |  |                                      |            |   |                                                                                   |  
|Issuance of common shares                                                                                   |  |                                      | 17,121,000 |   |                                                                                   |  
|Repurchase of common shares                                                                                 |  |                                      | (400,600   | ) |                                                                                   |  
|Net Increase in Net Assets Resulting from Capital Share Transactions                                        |  |                                      | 16,720,400 |   |                                                                                   |  
|Total Increase in Net Assets                                                                                |  |                                      | 16,185,458 |   |                                                                                   |  
|Net Assets, Beginning of Period                                                                             |  |                                      | 20,669,649 |   |                                                                                   |  
|Net Assets, End of Period                                                                                   |  | $                                    | 36,855,107 |   |                                                                                   | $



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



F-5


Table of Contents




Flat
Rock Capital Corp.

Consolidated
Statements of Cash Flows



|                                                                                                                            |  | Year Ended         |              |   | For
the Period May 3,
 2017
 (commencement of operations) through |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------------ | - | ----------------------------------------------------------------- | -
|                                                                                                                            |  | December 31,
 2018 |              |   | December 31,
 2017                                                |  
|                                                                                                                            |  |                    |              |   |                                                                   |  
|Cash Flows from Operating Activities:                                                                                       |  |                    |              |   |                                                                   |  
|Net increase in net assets resulting from operations                                                                        |  | $                  | 1,164,513    |   |                                                                   | $
|Adjustments to reconcile net
    increase in net assets resulting from operations to net cash used in operating activities: |  |                    |              |   |                                                                   |  
|Net change in realized gains/losses on investments and foreign currency transactions                                        |  |                    | (257,595     | ) |                                                                   |  
|Net change in unrealized gains/losses on investments and foreign currency translations                                      |  |                    | 998,576      |   |                                                                   |  
|Net amortization of discount on investments                                                                                 |  |                    | (40,345      | ) |                                                                   |  
|Net realized gains/losses on amortization                                                                                   |  |                    | 11,179       |   |                                                                   |  
|Purchases of investments                                                                                                    |  |                    | (123,016,550 | ) |                                                                   |  
|Proceeds from sale of investments                                                                                           |  |                    | 73,829,280   |   |                                                                   |  
|Amortization of deferred financing cost                                                                                     |  |                    | 19,506       |   |                                                                   |  
|Changes in operating assets and liabilities:                                                                                |  |                    |              |   |                                                                   |  
|Investment securities sold                                                                                                  |  |                    | 1,486,885    |   |                                                                   |  
|Dividends and interest receivable                                                                                           |  |                    | (360,263     | ) |                                                                   |  
|Receivable due from investment adviser                                                                                      |  |                    | 430,184      |   |                                                                   |  
|Receivable for paydowns                                                                                                     |  |                    | (193,173     | ) |                                                                   |  
|Prepaid expenses and other assets                                                                                           |  |                    | (75,000      | ) |                                                                   |  
|Payable for investments purchased                                                                                           |  |                    | 8,211,441    |   |                                                                   |  
|Unrealized (appreciation)/depreciation on forward foreign currency contracts                                                |  |                    | (407,953     | ) |                                                                   |  
|Accrued other general and administrative expenses                                                                           |  |                    | (288,841     | ) |                                                                   |  
|Net cash used in operating activities                                                                                       |  |                    | (38,488,156  | ) |                                                                   |  
|Cash Flows from Financing Activities:                                                                                       |  |                    |              |   |                                                                   |  
|Borrowings on credit facility                                                                                               |  |                    | 36,041,685   |   |                                                                   |  
|Payments on credit facility                                                                                                 |  |                    | (12,373,131  | ) |                                                                   |  
|Deferred financing costs                                                                                                    |  |                    | (455,049     | ) |                                                                   |  
|Distributions paid in cash                                                                                                  |  |                    | (1,610,275   | ) |                                                                   |  
|Subscription receivable                                                                                                     |  |                    | 100,000      |   |                                                                   |  
|Proceeds from issuance of common shares                                                                                     |  |                    | 17,121,000   |   |                                                                   |  
|Repurchase of common shares                                                                                                 |  |                    | (400,600     | ) |                                                                   |  
|Net cash provided by financing activities                                                                                   |  |                    | 38,423,630   |   |                                                                   |  
|Net increase in cash and cash equivalents                                                                                   |  |                    | (64,526      | ) |                                                                   |  
|Cash and cash equivalents, beginning of period                                                                              |  |                    | 1,244,044    |   |                                                                   |  
|Cash and cash equivalents, end of period                                                                                    |  | $                  | 1,179,518    |   |                                                                   | $
|                                                                                                                            |  |                    |              |   |                                                                   |  
|Non-cash financing activities:                                                                                              |  |                    |              |   |                                                                   |  
|Distributions payable                                                                                                       |  | $                  | 200,145      |   |                                                                   | $
|                                                                                                                            |  |                    |              |   |                                                                   |  
|Supplemental Information:                                                                                                   |  |                    |              |   |                                                                   |  
|Interest paid during the period                                                                                             |  | $                  | 180,601      |   |                                                                   | $



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





F-6


Table of Contents




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-7


Table of Contents




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-8


Table of Contents






Flat
Rock Capital Corp.

Schedule
of Investments

As
of December 31, 2017



|Company(3)                                   |  | Industry                        |  | Interest                        |  | Acquisition
    Date |  | Maturity
    Date |  | Principal
    / Par |            |  | Amortized
    Cost(1)(6) |   |            | Fair
    Value |  |   | Percentageof NetAssets | 
|-------------------------------------------- |  | ------------------------------- |  | ------------------------------- |  | -------------------- |  | ----------------- |  | ------------------- | ---------- |  | ------------------------ | - | ---------- | -------------- |  | - | ---------------------- | 
|Debt
    Investments                         |  |                                 |  |                                 |  |                      |  |                   |  |                     |            |  |                          |   |            |                |  |   |                        | 
|First
    Lien Senior Secured(2)             |  |                                 |  |                                 |  |                      |  |                   |  |                     |            |  |                          |   |            |                |  |   |                        | 
|AP
    Gaming I, LLC(5)                      |  | Entertainment
    & Leisure     |  | 1M
    USD L + 5.50% (1% Floor) |  | 6/6/2017             |  | 2/15/2024         |  | $                   | 249,373    |  |                          | $ | 249,373    |                |  | $ | 249,373                | 
|Hill
    International, Inc.                 |  | Business
    Services           |  | 3M
    USD L + 5.75% (1% Floor) |  | 9/22/2017            |  | 6/21/2023         |  |                     | 1,492,500  |  |                          |   | 1,485,259  |                |  |   | 1,485,037              | 
|Idera,
    Inc.                              |  | Computers
    & Electronics     |  | 1M
    USD L + 5.00% (1% Floor) |  | 6/27/2017            |  | 6/29/2024         |  |                     | 841,268    |  |                          |   | 839,933    |                |  |   | 845,474                | 
|KeyPoint
    Government Solutions, Inc.      |  | Federal
    Services            |  | 3M
    USD L + 6.00% (1% Floor) |  | 8/24/2017            |  | 4/30/2022         |  |                     | 974,684    |  |                          |   | 965,465    |                |  |   | 972,247                | 
|Logibec
    Inc.(4)                          |  | Healthcare
    IT               |  | 1M
    CDOR + 6.00% (1% Floor)  |  | 6/14/2017            |  | 1/15/2020         |  |                     | 5,123,523  |  |                          |   | 4,823,203  |                |  |   | 5,123,523              | 
|MRO
    Holdings, Inc.                       |  | Transportation                  |  | 3M
    USD L + 5.25% (1% Floor) |  | 10/20/2017           |  | 10/25/2023        |  |                     | 1,000,000  |  |                          |   | 990,062    |                |  |   | 990,000                | 
|Octave
    Music Group, Inc.                 |  | Broadcasting
    & Subscription |  | 1M
    USD L + 4.75% (1% Floor) |  | 10/17/2017           |  | 5/29/2021         |  |                     | 997,442    |  |                          |   | 1,004,712  |                |  |   | 999,936                | 
|Paradigm
    Business Solutions, Inc.        |  | Insurance
    Services          |  | 3M
    USD L+ 4.25% (1% Floor)  |  | 10/6/2017            |  | 10/4/2024         |  |                     | 500,000    |  |                          |   | 498,805    |                |  |   | 498,750                | 
|PetVet
    Care Centers, LLC                 |  | Consumer
    Services           |  | 3M
    USD L + 6.00% (1% Floor) |  | 8/24/2017            |  | 3/31/2023         |  |                     | 995,000    |  |                          |   | 990,473    |                |  |   | 990,025                | 
|Radiology
    Partners, Inc. Term Loan       |  | Healthcare
    Services         |  | 1M
    USD L + 5.75% (1% Floor) |  | 11/28/2017           |  | 12/4/2023         |  |                     | 3,084,000  |  |                          |   | 3,048,343  |                |  |   | 3,044,867              | 
|Radiology
    Partners, Inc. Delayed Draw    |  | Healthcare
    Services         |  | 1M
    USD L + 5.75% (1% Floor) |  | 11/28/2017           |  | 12/4/2023         |  |                     | 564,000    |  |                          |   | 564,000    |                |  |   | 564,000                | 
|Radiology
    Partners, Inc. Delayed Draw(7) |  | Healthcare
    Services         |  | —                               |  | 11/28/2017           |  | 12/4/2023         |  |                     | —          |  |                          |   | —          |                |  |   | —                      | 
|ThreeBridge
    Solutions Term Loan          |  | IT
    Implementation           |  | 1M
    USD L+ 9.00% (1% Floor)  |  | 12/1/2017            |  | 12/1/2022         |  |                     | 4,000,000  |  |                          |   | 3,957,791  |                |  |   | 3,955,000              | 
|ThreeBridge
    Solutions Delayed Draw(7)    |  | IT
    Implementation           |  | —                               |  | 12/1/2017            |  | 6/30/2018         |  |                     | —          |  |                          |   | —          |                |  |   | —                      | 
|Total
    First Lien Senior Secured          |  |                                 |  |                                 |  |                      |  |                   |  | $                   | 19,821,790 |  |                          | $ | 19,417,419 |                |  | $ | 19,718,232             | 
|                                             |  |                                 |  |                                 |  |                      |  |                   |  |                     |            |  |                          |   |            |                |  |   |                        | 
|Total
    Debt Investments                   |  |                                 |  |                                 |  |                      |  |                   |  |                     | 19,821,790 |  |                          |   | 19,417,419 |                |  |   | 19,718,232             | 



|                                          |  | 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 | % |          | 1/4/2018 |             | 12/29/2017 |               |  | 8,000,000 |            |  |   | 8,000,000    |  |  |       | 7,999,543  |  |               |  
|Total
    U.S. Government Securities      |  |          |      |   |          |          |             |            |               |  |           |            |  |   | 8,000,000    |  |  |       | 7,999,543  |  |               |  
|                                          |  |          |      |   |          |          |             |            |               |  |           |            |  |   |              |  |  |       |            |  |               |  
|Total
    Investments                     |  |          |      |   |          |          |             |            |               |  |           |            |  | $ | 27,821,790   |  |  | $     | 27,416,962 |  |               | $
|Liabilities
    in Excess of Other Assets |  |          |      |   |          |          |             |            |               |  |           |            |  |   |              |  |  |       |            |  |               |  
|Net
    assets                            |  |          |      |   |          |          |             |            |               |  |           |            |  |   |              |  |  |       |            |  |               | $





F-9


Table of Contents




Forward
foreign currency contracts outstanding as of December 31, 2017 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 |  |            | 8/1/2018 |  |                | 





|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. For each such loan, the Company has provided
                                         the interest rate in effect on the date presented. As of December 31, 2017, the 1 month
                                         (1M), 2 month (2M), and 3 month (3M) USD LIBOR rates were 1.56%, 1.62%, and 1.69% respectively.
                                         As of December 31, 2017, CDOR was 1.48%.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | As of December 31, 2017, 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.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Investments or a portion of investments are unsettled as of December
                                         31, 2017.
| | --- | -----------------------------------------------------------------------------------------------------------------------



| | (6) | As of December 31, 2017, the tax cost of the Company’s investments
                                         approximates their amortized cost.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | The entire commitment was unfunded as of December 31, 2017. As
                                         such, no interest is being earned on this investment. The investment is subject to a
                                         1% commitment fee (see Note 7 to the financial statements).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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









F-10


Table of Contents




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 and 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” of the Company or Flat Rock Global,
as such term is defined in Section 2(a)(19) of the 1940 Act.



The Company is conducting a continuous
private offering of shares of common stock to investors in reliance on exemptions from the registration requirements of the Securities
Act of 1933, as amended (the “Securities Act”). Shares of common stock 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 generally accepted accounting
principles 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 Accounting Standards Codification (“ASC”)
Topic 946, Financial Services - Investment Companies.



Use of Estimates



U.S. GAAP requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported
amounts of income and expenses 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.



Cash and Cash Equivalents



Cash and cash equivalents consist of demand
deposits and highly liquid investments (e.g., U.S. treasury notes) 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.



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Income Taxes



The Company has elected to be treated for
U.S. federal income tax purposes as a RIC under the Code beginning with its taxable year ended December 31, 2017. 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 Revenue.



Valuation of Portfolio Investments



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 Company’s Board of Directors, is responsible for executing the valuation policy. 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 valuation 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.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Investments are 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 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.



The Company has adopted Financial Accounting
Standards Board, or 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.



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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.



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 amortized 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.



Organization and Offering Expenses



Generally, costs associated with the organization
of the Company are expensed as incurred, and costs incurred in connection with a continuous offering are deferred and amortized
over twelve months from incurrence. However, the Adviser has agreed to bear all organization expenses and offering costs incurred
in connection with the private offering and such expenses will not be subject to reimbursement by the Company.



Interest and Dividend Income Recognition



Interest income is recorded on the accrual
basis and includes amortization of discounts or premiums. Discounts and premiums to par value on securities purchased are amortized
into interest income over the contractual life of the respective security using the effective yield method. The amortized cost
of investments represents the original cost adjusted for the amortization of discounts or premiums, 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. 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.



Debt
Issuance Costs



The Company records origination and other
expenses related to its debt obligations as deferred financing costs. These expenses are deferred and amortized over the life
of the related debt instrument. Debt issuance costs are presented on the statement of assets and liabilities as a direct deduction
from the debt liability. In circumstances in which there is not an associated debt liability amount recorded in the financial
statements when the debt issuance costs are incurred, such debt issuance costs will be reported on the statement of assets and
liabilities as an asset until the debt liability is recorded.



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.



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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, 2018, 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 and for the year ended December 31, 2018, grouped by contract type and risk exposure category.





|Derivatives      
|-----------------
|                 
|Forward Contracts
|Derivative Assets



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 year ended December 31, 2018, grouped by contract type and risk exposure.





|Derivative Type   |  | Statement of Operation Location                                                     |  | Foreign Currency Contracts |         |  | Total |  
|----------------- |  | ----------------------------------------------------------------------------------- |  | -------------------------- | ------- |  | ----- | -
|                  |  |                                                                                     |  |                            |         |  |       |  
|Forward Contracts |  | Net change in unrealized gains (losses) from forward foreign
    currency contracts |  | $                          | 407,953 |  |       | $
|                  |  |                                                                                     |  | $                          | 407,953 |  |       | $





During the year ended December 31, 2018,
the Company’s quarterly average volume of derivatives is as follows:



|Forward Foreign Currency Contracts - Payable
                                                                                (Value at Trade Date) |                    
|-------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------
|                                                                                                                                                   |                    
|                                                                                                                                                  
|                                                                                                                                                   | $        (5,090,981





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 and unrealized
gain or 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.





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Table of Contents




Accounting Standards



In March 2017, the FASB issued ASU 2017-08,
Receivables— Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities(“ASU 2017-08”), which amends the amortization period for certain purchased callable debt securities held at a
premium, shortening such period to the earliest call date. ASU 2017-08 does not require any accounting change for debt securities
held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2018. Management has assessed these changes and does not believe
they would have a material impact on the Company’s consolidated financial statements and disclosures.



In August 2017, the FASB issued ASU
2017-12, which amends the hedge accounting recognition and presentation requirements in ASC 815. The FASB’s objectives
in issuing ASU 2017-12 are to (1) improve the transparency and understandability of information conveyed to financial
statement users about an entity’s risk management activities by better aligning the entity’s financial reporting
for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application
of hedge accounting by preparers. ASU 2017-12 is effective on fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. Management has assessed these changes and does not believe they would have a material impact on the Company’s consolidated
financial statements and disclosures.



In February 2018, the FASB issued ASU 2018-03,
Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities(“ASU 2018-03”), which makes minor changes to certain aspects of
recognition, measurement, presentation and disclosure of financial instruments. ASU 2018-03 is effective for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Adoption of this standard
had no impact on the Company’s consolidated financial statements and disclosures.



In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement(“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 is currently evaluating the impact these changes will have on the Company’s consolidated financial
statements and disclosures.



In August 2018, the Securities and Exchange
Commission issued Final Rule Release No. 33-10532, Disclosure Update and Simplification, which in part amends certain disclosure
requirements of Regulation S-X that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other
Commission disclosure requirements, U.S. GAAP, or changes in the information environment. The amendments are intended to facilitate
the disclosure of information to investors and simplify compliance without significantly altering the total mix of information
provided to investors. The effective date for these disclosures is November 5, 2018. Management has adopted this standard and all
appropriate disclosures have been incorporated within the Company’s consolidated financial statements.



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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, 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 Flat Rock Global, all of which were waived by Flat Rock Global. For the
year ended December 31, 2018, the Company incurred management fees of $625,782, all of which were waived by Flat Rock Global. For
the period May 3, 2017 (commencement of operations) through December 31, 2017, the Company incurred management fees of $233,070,
all of which were waived 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 subordinated 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 subordinated 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.





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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, 2018 and
for the period May 3, 2017 (commencement of operations) through December 31, 2017, the Company did not incur subordinated 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 year ended December 31, 2018, the Company did not accrue capital gains incentive fees. For the period May 3, 2017 (commencement of operations) through December 31, 2017, the Company accrued
capital gains incentive fees of $12,368. 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, 2018, the reimbursement totaled $101,939, which consisted of audit, fund accounting,
fund administration, insurance, legal, valuation and other fees. For the 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 amortized cost and fair value as of December 31, 2018 and 2017:



|                                   |  | December 31, 2018 |            |  | December 31, 2017 |  
|---------------------------------- |  | ----------------- | ---------- |  | ----------------- | -
|                                   |  | Amortized         |            |  | Fair              |  
|                                   |  | Cost              |            |  | Value             |  
|First-lien senior secured debt     |  | $                 | 61,888,480 |  |                   | $
|U.S. Government Securities         |  |                   | 14,999,107 |  |                   |  
|                                   |  |                   | 76,887,587 |  |                   |  
|Forward foreign currency contracts |  |                   | -          |  |                   |  
|Total Investments                  |  | $                 | 76,887,587 |  |                   | $



As of December 31, 2018, approximately 6.10%
of the investment portfolio at amortized cost and 5.93% of the investment portfolio measured at fair value, respectively, were
invested in portfolio companies with foreign domiciles, specifically Canada. Such investments are not qualifying assets as defined
by Section 55(a) of the Investment Company Act of 1940.





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The industry composition of investments
based on fair value as of December 31, 2018 and 2017 was as follows:



|                                   |  | December 31,
2018 |       |   | December 31,
2017 | 
|---------------------------------- |  | ----------------- | ----- | - | ----------------- | 
|                                   |  |                   |       |   |                   | 
|Insurance Services                 |  |                   | 24.6  | % |                   | 
|U.S. Government Securities         |  |                   | 19.6  | % |                   | 
|Consumer Goods                     |  |                   | 9.0   | % |                   | 
|IT Implementation                  |  |                   | 7.4   | % |                   | 
|Healthcare IT                      |  |                   | 5.9   | % |                   | 
|Computers & Electronics            |  |                   | 5.2   | % |                   | 
|Construction & Building            |  |                   | 5.2   | % |                   | 
|Healthcare Services                |  |                   | 5.0   | % |                   | 
|Direct Selling                     |  |                   | 4.3   | % |                   | 
|Insurance Brokerage                |  |                   | 3.6   | % |                   | 
|Business Services                  |  |                   | 2.9   | % |                   | 
|Transportation                     |  |                   | 1.3   | % |                   | 
|Broadcasting & Subscription        |  |                   | 1.3   | % |                   | 
|Aerospace and Defense              |  |                   | 1.3   | % |                   | 
|High Tech Industries               |  |                   | 1.2   | % |                   | 
|Chemicals & Allied Products        |  |                   | 1.1   | % |                   | 
|Capital Equipment                  |  |                   | 0.6   | % |                   | 
|Forward Foreign Currency Contracts |  |                   | 0.5   | % |                   | 
|Consumer Services                  |  |                   | 0.0   | % |                   | 
|Federal Services                   |  |                   | 0.0   | % |                   | 
|Entertainment & Leisure            |  |                   | 0.0   | % |                   | 
|Total                              |  |                   | 100.0 | % |                   | 





* Less than 0.5%.



The geographic composition of investments
based on fair value as of December 31, 2018 and 2017 was as follows:





|                           |  | December 31, 2018 |       |   | December 31, 2017 | 
|-------------------------- |  | ----------------- | ----- | - | ----------------- | 
|                           |  |                   |       |   |                   | 
|United States:             |  |                   |       |   |                   | 
|West                       |  |                   | 27.0  | % |                   | 
|U.S. Government Securities |  |                   | 19.7  | % |                   | 
|Northeast                  |  |                   | 14.4  | % |                   | 
|Midwest                    |  |                   | 13.9  | % |                   | 
|Southeast                  |  |                   | 12.1  | % |                   | 
|South                      |  |                   | 7.0   | % |                   | 
|Canada                     |  |                   | 5.9   | % |                   | 
|Total                      |  |                   | 100.0 | % |                   | 





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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.



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



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.



There were no transfers between levels
during the period.



The following table presents the fair value
hierarchy of investments as of December 31, 2018 and 2017:



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



|                                   |  | Fair Value Hierarchy as of
    December 31, 2017 |  
|---------------------------------- |  | ------------------------------------------------ | -
|                                   |  | Level 1                                          |  
|First-lien senior secured debt     |  | $                                                | -
|U.S. Government Securities         |  |                                                  | -
|Forward foreign currency contracts |  |                                                  | -
|Total Investments                  |  | $                                                | -





F-19


Table of Contents




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 year ended December
31, 2018 and for the period May 3, 2017 (commencement of operations) through December 31, 2017:



|First-lien senior secured debt              |  | For the Year Ended December 31, 2018 |             |   | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 |  
|------------------------------------------- |  | ------------------------------------ | ----------- | - | --------------------------------------------------------------------------------- | -
|Fair value, beginning of period             |  | $                                    | 19,718,232  |   |                                                                                   | $
|Purchases of investments, net               |  |                                      | 87,520,229  |   |                                                                                   |  
|Proceeds from sales and paydowns            |  |                                      | (45,086,107 | ) |                                                                                   |  
|Net change in unrealized gain (loss)        |  |                                      | (998,600    | ) |                                                                                   |  
|Net amortization of discount on investments |  |                                      | 40,345      |   |                                                                                   |  
|Transfers into (out of) Level 3             |  |                                      | -           |   |                                                                                   |  
|Fair value, end of period                   |  | $                                    | 61,194,099  |   |                                                                                   | $



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



|Net Change in Unrealized Gain (Loss) |  | For the Year Ended December 31, 2018 |          |   | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 |  
|------------------------------------ |  | ------------------------------------ | -------- | - | --------------------------------------------------------------------------------- | -
|                                     |  |                                      |          |   |                                                                                   |  
|First-lien senior secured debt       |  | $                                    | (992,391 | ) |                                                                                   | $





F-20


Table of Contents




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, 2018, the Company used the relevant EBITDA
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, 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, 2018 and 2017.
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, 2018
|------------------------------ |  | -----------------------
|                               |  |                        
|                               |  | Fair Value             
|First-lien senior secured debt |  | $                      
|First-lien senior secured debt |  |                        
|                               |  | $                      



|                               |  | As of December 31, 2017
|------------------------------ |  | -----------------------
|                               |  |                        
|                               |  | Fair Value             
|First-lien senior secured debt |  | $                      
|First-lien senior secured debt |  |                        
|                               |  | $                      
|                               |  |                        
|                               |  |                        



F-21


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Note 6. Borrowings





In accordance with the 1940 Act, with certain
limitations, the Company is allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200%
after such borrowing. As of December 31, 2018, the Company’s asset coverage was 250%.



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 Loan Agreement is effective
as of October 12, 2018.



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.





|                |  | 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 Company’s Credit
                                         Facility is presented net of deferred financing costs of $0.4 million.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



Average debt outstanding during the period
October 12, 2018 (inception of Loan Agreement) through December 31, 2018 was $12.7 million.



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 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.



For the year ended December 31, 2018, the
components of interest expense were as follows:





|                                                                |  | December 31, 2018 |        
|--------------------------------------------------------------- |  | ----------------- | -------
|                                                                |  |                   |        
|Interest expense                                                |  | $                 | 150,100
|Amortization of debt issuance costs                             |  |                   | 19,508 
|Total interest expense                                          |  | $                 | 169,608
|Average interest rate                                           |  |                   | 5.23   
|Unamortized deferred financing costs, revolving credit facility |  | $                 | 435,543



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.





F-22


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Note 7. Share Transactions



Offering Proceeds



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.



Distributions



The following table reflects the distributions
declared on shares of the Company’s common stock during the year ended December 31, 2018:



|Declaration |  | Record     |  | Distribution  |       |  | Payment |           | Distribution |  
|----------- |  | ---------- |  | ------------- | ----- |  | ------- | --------- | ------------ | -
|Date        |  | Date       |  | Per
    Share |       |  | Date    |           | Payment      |  
|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  |              |  
|            |  |            |  |               |       |  |         |           |              | $





Repurchases of Shares



The Small Business Credit Availability
Act (the “SBCAA”) was signed into law as part of the 2018 omnibus spending bill on March 23, 2018. The SBCAA permits
a BDC to incur additional amounts of leverage than previously permitted under the 1940 Act. Specifically, the SBCAA permits a
BDC to reduce its asset coverage ratio from 200% to 150% so long as such BDC complies with certain requirements contained within
the SBCAA. For BDCs, like the Company, that do not have shares of common stock listed on a national securities exchange, in order
to take advantage of the modified asset coverage ratio, they must, among other things, extend, within the next twelve months,
to each of the BDC’s stockholders as of the date of approval from the BDC’s board of directors, the opportunity to
sell the securities held by that stockholder as of that date.



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. As a result, assuming the Company complies
with the requirements set forth in the SBCAA, the asset coverage ratio test applicable to the Company will be 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 a tender offer on June 27, 2018 offering to repurchase up to 283,529 shares of
the Company’s issued and outstanding common stock, at a price equal to the net asset value per share on July 26, 2018. The
tender offer represented 25% of the total issued and outstanding shares of common stock as of May 30, 2018. The tender offer expired
at 11:59 P.M., Central Time, on July 26, 2018 (the “Expiration Date”). As of the Expiration Date, 20,000 shares of
the Company’s common stock were validly tendered and not withdrawn pursuant to the tender offer. In accordance with the
terms of the tender offer, the Company purchased all 20,000 shares of its common stock validly tendered and not withdrawn at a
price equal to $20.03 per share for an aggregate purchase price of approximately $400,600.





F-23


Table of Contents




On August 7, 2018, following approval
from the Board, the Company filed a second tender offer to repurchase up to 315,818 shares of the Company’s issued and
outstanding common stock, which represented 25% of the total issued and outstanding shares of our common stock as of July 31,
2018. The second tender offer expired at 11:59 P.M., Central Time, on September 6, 2018 (the “Second Offer Expiration
Date”). As of the Second Offer Expiration Date, no shares of the Company’s common stock were validly tendered and
not withdrawn pursuant to the second tender offer. In accordance with the terms of the second tender offer, the Company did
not purchase any shares of its common stock pursuant to the second tender offer.



On
September 12, 2018, following approval from the Board, the Company filed a third tender offer to repurchase up to 343,089 shares
of the Company’s issued and outstanding common stock, which represented 25% of the issued and outstanding shares of our
common stock as of September 11, 2018. The third tender offer expired at 11:59 P.M., Central Time, on October 12, 2018 (the “Third
Offer Expiration Date”). As of the Third Offer Expiration Date, no shares of the Company’s common stock were validly
tendered and not withdrawn pursuant to the third tender offer. In accordance with the terms of the third tender offer, the Company
did not purchase any shares of its common stock pursuant to the third tender offer.



On
October 24, 2018, following approval from the Board, the Company filed a fourth tender offer to repurchase up to 433,109 shares
of the Company’s issued and outstanding common stock, which represented 25% of the total issued and outstanding shares of
our common stock as of October 23, 2018. The fourth tender offer expired at 11:59 P.M., Central Time, on December 4, 2018 (the
“Fourth Offer Expiration Date”). As of the Fourth Offer Expiration Date, no shares of the Company’s common stock
were validly tendered and not withdrawn pursuant to the fourth tender offer. In accordance with the terms of the fourth tender
offer, the Company did not purchase any shares of its common stock pursuant to the fourth tender offer.



Note 8. Commitments and Contingencies





The Company had an aggregate of $1,167,391
of unfunded commitments to provide debt financing to its portfolio companies or to fund limited partnership interests as of December
31, 2018. 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 statement of assets and liabilities and are not reflected in the Company’s statement of assets and
liabilities.



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





|                                |  | As of                 |          
|------------------------------- |  | --------------------- | ---------
|                                |  | December 31,
    2018 |          
|                                |  |                       |          
|World Insurance Associates, LLC |  | $                     | 1,167,391
|Total unfunded commitments      |  | $                     | 1,167,391





A summary of the composition of the unfunded
commitments as of December 31, 2017 is shown in the table below:





|                           |  | As of              |        
|-------------------------- |  | ------------------ | -------
|                           |  | December 31,  2017 |        
|                           |  |                    |        
|Radiology Partners, Inc.   |  |                    | 351,133
|ThreeBridge Solutions      |  |                    | 500,000
|Total unfunded commitments |  | $                  | 851,133



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, 2018, management is not
aware of any pending or threatened litigation.





F-24


Table of Contents




Note 9. Earnings Per Share



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





|                                                                        |  | For the Year Ended December 31,
    2018 |           |  | For the Period May 3,
    2017 (commencement of operations) through December 31, 2017 |  
|----------------------------------------------------------------------- |  | ---------------------------------------- | --------- |  | ------------------------------------------------------------------------------------- | -
|                                                                        |  |                                          |           |  |                                                                                       |  
|Increase in net assets resulting from operations                        |  | $                                        | 1,164,513 |  |                                                                                       | $
|Weighted average shares of common stock outstanding - basic and diluted |  |                                          | 1,317,698 |  |                                                                                       |  
|Earnings per common share - basic and diluted                           |  | $                                        | 0.88      |  |                                                                                       | $



Note 10. Income Taxes



The Company intends to elect to be treated
as a RIC under the Internal Revenue Code (“Code”) for its taxable year end December 31, 2018. 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 a dividend. The Company anticipates distributing substantially all of its taxable income and gains, within the Subchapter M
rules, and thus the Company anticipates that it will not incur any federal or state income tax at the RIC level. 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
(e.g., calendar year 2018). 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 due to reclassifications
of the funds distributions for tax purposes from distributable earnings to additional paid in capital were reclassified for tax
purposes for the tax years ended December 31, 2018 and 2017.





|                                                      |  | Year Ended December 31, 2018 |          |   | For the Period May 3, 2017 (commencement of operations) through December 31, 2017 |  
|----------------------------------------------------- |  | ---------------------------- | -------- | - | --------------------------------------------------------------------------------- | -
|                                                      |  |                              |          |   |                                                                                   |  
|Increase (decrease) in distributable earnings         |  | $                            | (159,125 | ) |                                                                                   | $
|Increase (decrease) in capital in excess of par value |  | $                            | 159,125  |   |                                                                                   | $







F-25


Table of Contents




The following reconciles net increase in
net assets resulting from operations to taxable income for the year ended December 31, 2018:





|                                                                      |  | 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       |  | $                                | 1,164,513 |  |                                                                                          | $
|Net change in unrealized appreciation (depreciation) from investments |  |                                  | 590,623   |  |                                                                                          |  
|Net realized losses                                                   |  |                                  | -         |  |                                                                                          |  
|Other book tax differences                                            |  |                                  | 149,467   |  |                                                                                          |  
|Taxable income before deductions for distributions                    |  | $                                | 1,904,603 |  |                                                                                          | $







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



As of December 31, 2018, the components
of accumulated earnings on a tax basis were as follows:



|                                           |  | Year Ended  December 31,
    2018 |          |   | For the Period May 3,  2017 (commencement
    of operations) through December 31, 2017 |  
|------------------------------------------ |  | --------------------------------- | -------- | - | -------------------------------------------------------------------------------------- | -
|Undistributed net investment income (loss) |  | $                                 | 136,522  |   |                                                                                        | $
|Undistributed capital gains                |  |                                   | 246,350  |   |                                                                                        |  
|Capital loss carryforward                  |  |                                   | —        |   |                                                                                        |  
|Other accumulated gain (loss)              |  |                                   | (200,145 | ) |                                                                                        |  
|Net unrealized appreciation                |  |                                   | (697,020 | ) |                                                                                        |  
|Total                                      |  | $                                 | (514,293 | ) |                                                                                        | $



Capital losses can be carried forward indefinitely
to offset future capital gains. As of December 31, 2018, the Company had no capital loss carryforwards.



As of December 31, 2018, 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,
 2018 |           
|--------------------------------------------------------- |  | ------------------ | ----------
|Tax cost                                                  |  | $                  | 76,887,587
|Gross unrealized appreciation                             |  |                    | 42,841    
|Gross unrealized depreciation                             |  |                    | (739,861  
|Net unrealized appreciation/(depreciation) on investments |  | $                  | (697,020  









F-26


Table of Contents






The Company adopted Financial Accounting Standards
Board 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, 2018, 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 financial statements. The following is a schedule of financial highlights
for the year ended December 31, 2018 and for the period May 3, 2017 (commencement of operations) through December 31, 2017:





|                                                                                                   |  | For the Year Ended  December 31,  2018 |            |   | For the Period  May 3,  2017 (commencement of operations) through  December 31,  2017 |  
|-------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ---------- | - | ------------------------------------------------------------------------------------- | -
|Per Common Share Operating Performance                                                             |  |                                        |            |   |                                                                                       |  
|Net Asset Value, Beginning of Period                                                               |  | $                                      | 20.02      |   |                                                                                       | $
|                                                                                                   |  |                                        |            |   |                                                                                       |  
|Results of Operations:                                                                             |  |                                        |            |   |                                                                                       |  
|Net Investment Income(1)                                                                           |  |                                        | 1.15       |   |                                                                                       |  
|Net Realized and Unrealized Gain (Loss) on Investments(1)                                          |  |                                        | (0.13      | ) |                                                                                       |  
|Net Increase (Decrease) in Net Assets Resulting from Operations                                    |  |                                        | 1.02       |   |                                                                                       |  
|                                                                                                   |  |                                        |            |   |                                                                                       |  
|Distributions to Common Stockholders                                                               |  |                                        |            |   |                                                                                       |  
|Distributions from Net Investment Income                                                           |  |                                        | (1.30      | ) |                                                                                       |  
|Return of Capital                                                                                  |  |                                        | -          |   |                                                                                       |  
|Net Decrease in Net Assets Resulting from Distributions                                            |  |                                        | (1.30      | ) |                                                                                       |  
|                                                                                                   |  |                                        |            |   |                                                                                       |  
|Capital Share Transactions                                                                         |  |                                        |            |   |                                                                                       |  
|Issuance of Common Stock                                                                           |  |                                        | -          |   |                                                                                       |  
|Net Increase (Decrease) Resulting from Capital Share Transactions                                  |  |                                        | -          |   |                                                                                       |  
|Net Asset Value, End of Period                                                                     |  | $                                      | 19.74      |   |                                                                                       | $
|                                                                                                   |  |                                        |            |   |                                                                                       |  
|Shares Outstanding, End of Period                                                                  |  |                                        | 1,867,233  |   |                                                                                       |  
|                                                                                                   |  |                                        |            |   |                                                                                       |  
|Ratio/Supplemental Data                                                                            |  |                                        |            |   |                                                                                       |  
|Net assets, end of period                                                                          |  | $                                      | 36,855,107 |   |                                                                                       | $
|Weighted-average shares outstanding                                                                |  |                                        | 1,317,698  |   |                                                                                       |  
|Total Return(3)                                                                                    |  |                                        | 5.07       | % |                                                                                       |  
|Portfolio turnover                                                                                 |  |                                        | 136.5      | % |                                                                                       |  
|Ratio of operating expenses to average net assets without waiver and reimbursement(2)(4)           |  |                                        | 6.15       | % |                                                                                       |  
|Ratio of operating expenses to average net assets with waiver and reimbursement(2)(4)              |  |                                        | 3.52       | % |                                                                                       |  
|Ratio of net investment income (loss) to average net assets without waiver and reimbursement(2)(4) |  |                                        | 2.84       | % |                                                                                       |  
|Ratio of net investment income (loss) to average net assets with waiver and reimbursement(2)(4)    |  |                                        | 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 which is not subject
                                         to reimbursement by Flat Rock Global.
| | --- | -----------------------------------------------------------------------------------------------------------------------------





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Note 12. Selected Quarterly Financial Data (Unaudited)



|                                                                                                         |  | 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.



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, 2019, the Company issued and
sold 68,088 shares of its common stock at an aggregate purchase price of $1,344,950. 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 February 28, 2019, the Company issued
and sold 43,407 shares of its common stock at an aggregate purchase price of $859,900. 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 13, 2018, the Company declared
a distribution of $0.108 per share, or $201,682, which was paid on February 6, 2019.



On November 13, 2018, the Company declared
a distribution of $0.108 per share, or $209,035, which was paid on March 6, 2019.



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



None.



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, 2018, 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, 2018. 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, 2018 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.



ITEM 9B. OTHER INFORMATION



None.



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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 or information 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 or information 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 or information 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 or information 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 or information statement, to be filed with the SEC within
120 days following the end of our fiscal year.



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Table of Contents




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                                                                                                            | F-2 
|Statements of Assets and Liabilities as of December 31, 2018 and 2017                                                                                              | F-3 
|Statements of Operations for the Year Ended December 31, 2018 and for the Period May 3, 2017 (Commencement of Operations)
    through December 31, 2017            | F-4 
|Statements of Changes in Net Assets for the Year Ended December 31, 2018 and for the Period May 3, 2017 (Commencement of
    Operations) through December 31, 2017 | F-5 
|Statements of Cash Flows for the Year Ended December 31, 2018 and for the Period May 3, 2017 (Commencement of Operations)
    through December 31, 2017            | F-6 
|Schedules of Investments as of December 31, 2018 and 2017                                                                                                          | F-7 
|Notes
    to Consolidated Financial Statements                                                                                                                     | F-11



(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.)                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                          
|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.)
|     |                                                                                                                                                                                                                                                                                                                                                                                                                          





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|14.1  | Code of Business Conduct and Ethics (Incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 15, 2018.)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                       
|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 13, 2019 | 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  13, 2019 | By: | /s/
    Robert K. Grunewald                                                                       
|-------------------------- | --- | --------------------------------------------------------------------------------------------------
|                           |     | Robert
    K. Grunewald                                                                           
|                           |     | President
    and Chief Executive Officer(Principal Executive Officer)                            
|                           |     |                                                                                                   
|Dated:
    March 13, 2019  | By: | /s/
Richard A. Petrocelli                                                                         
|                           |     | Richard
    A. Petrocelli                                                                         
|                           |     | Chief
    Financial Officer andChief Operating Officer(Principal Financial and Accounting Officer)
|                           |     |                                                                                                   
|Dated:
    March 13, 2019  | By: | /s/
R.
    Scott Coolidge                                                                         
|                           |     | R.
    Scott Coolidge                                                                             
|                           |     | Director                                                                                          
|                           |     |                                                                                                   
|Dated:
    March 13,  2019 | By: | /s/Michael
    L. Schwarz                                                                         
|                           |     | Michael
    L. Schwarz                                                                            
|                           |     | Director                                                                                          





53