UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



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



For the Quarterly Period Ended June 30,
2016



OR



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



For the transition period from         
   to



Commission File Number 814-00878



Garrison Capital Inc.

(Exact name of registrant as specified in
its charter)



|Delaware                                                               |  | 90-0900145                                  
|---------------------------------------------------------------------- |  | --------------------------------------------
|(State or other jurisdiction of
        incorporation or organization) |  | (I.R.S. Employer
        Identification No.)



1290 Avenue of the Americas, Suite 914

New York, New York 10104

(Address of principal executive offices)



(212) 372-9590

(Registrant’s telephone number, including
area code)



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



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



|Large accelerated filer  ☐                                                 |  | Accelerated filer  ☒        
|-------------------------------------------------------------------------- |  | ----------------------------
|Non-accelerated filer  ☐ (Do not check if a
    smaller reporting company) |  | Smaller reporting company  ☐



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



As of August 4, 2016 the Registrant had
16,058,552 shares of common stock, $0.001 par value, outstanding.











Table of Contents





|                                                                                                                      | Page
|--------------------------------------------------------------------------------------------------------------------- | ----
|Part I. Financial Information                                                                                         |     
|                                                                                                                      |     
|Item 1. Financial Statements                                                                                          | 1   
|                                                                                                                      |     
|Consolidated Statements of Financial Condition as of June 30, 2016 (unaudited) and December 31, 2015                  | 1   
|                                                                                                                      |     
|Consolidated Schedules of Investments as of June 30, 2016 (unaudited) and December 31, 2015                           | 2   
|                                                                                                                      |     
|Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2016 and June 30, 2015  | 14  
|                                                                                                                      |     
|Consolidated Statements of Changes in Net Assets (unaudited) for the six months ended June 30, 2016 and June 30, 2015 | 15  
|                                                                                                                      |     
|Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2016 and June 30, 2015            | 16  
|                                                                                                                      |     
|Notes to Consolidated Financial Statements (unaudited)                                                                | 17  
|                                                                                                                      |     
|Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations                         | 47  
|                                                                                                                      |     
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                    | 62  
|                                                                                                                      |     
|Item 4. Controls and Procedures                                                                                       | 62  
|                                                                                                                      |     
|Part II. Other Information                                                                                            |     
|                                                                                                                      |     
|Item 1. Legal Proceedings                                                                                             | 63  
|                                                                                                                      |     
|Item 1A. Risk Factors                                                                                                 | 63  
|                                                                                                                      |     
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                   | 63  
|                                                                                                                      |     
|Item 3. Defaults Upon Senior Securities                                                                               | 63  
|                                                                                                                      |     
|Item 4. Mine Safety Disclosures                                                                                       | 63  
|                                                                                                                      |     
|Item 5. Other Information                                                                                             | 63  
|                                                                                                                      |     
|Item 6. Exhibits                                                                                                      | 63  









i




Garrison Capital Inc. and Subsidiaries



Consolidated Statements
of Financial Condition



($
in thousands, except share and per share amounts)





Part I. Financial Information



Item 1. Financial Statements





|                                                                                                                                                                                                                                                                              |  | June 30, 2016 |            | December 31, 2015
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | -----------------
|                                                                                                                                                                                                                                                                              |  | (unaudited)   |            |                  
|Assets                                                                                                                                                                                                                                                                        |  |               |            |                  
|Cash                                                                                                                                                                                                                                                                          |  | $             | 18,143     |                  
|Restricted cash                                                                                                                                                                                                                                                               |  |               | 7,253      |                  
|Due from counterparties                                                                                                                                                                                                                                                       |  |               | 2,283      |                  
|Investments, at fair value                                                                                                                                                                                                                                                    |  |               |            |                  
|Non-control/non-affiliate investments (amortized cost of $422,764 and $437,053, respectively)                                                                                                                                                                                 |  |               | 400,917    |                  
|Non-control/affiliate investments (amortized cost of $3,677 and $0, respectively)                                                                                                                                                                                             |  |               | 3,677      |                  
|Accrued interest receivable                                                                                                                                                                                                                                                   |  |               | 4,218      |                  
|Deferred offering costs                                                                                                                                                                                                                                                       |  |               | 503        |                  
|Other assets                                                                                                                                                                                                                                                                  |  |               | 186        |                  
|Total assets                                                                                                                                                                                                                                                                  |  | $             | 437,180    |                  
|                                                                                                                                                                                                                                                                              |  |               |            |                  
|Liabilities                                                                                                                                                                                                                                                                   |  |               |            |                  
|Due to counterparties                                                                                                                                                                                                                                                         |  | $             | 2,089      |                  
|Management fee payable                                                                                                                                                                                                                                                        |  |               | 1,824      |                  
|Administrator fee payable                                                                                                                                                                                                                                                     |  |               | 213        |                  
|GLC Trust 2013-2 Class A note (Note 7)                                                                                                                                                                                                                                        |  |               | 9,517      |                  
|Senior secured revolving note (Note 7)                                                                                                                                                                                                                                        |  |               | 31,100     |                  
|Senior secured term notes (Note 7)                                                                                                                                                                                                                                            |  |               | 156,686    |                  
|SBIC borrowings (Note 7)                                                                                                                                                                                                                                                      |  |               | 25,775     |                  
|Interest payable                                                                                                                                                                                                                                                              |  |               | 955        |                  
|Accrued expenses and other payables                                                                                                                                                                                                                                           |  |               | 834        |                  
|Total liabilities                                                                                                                                                                                                                                                             |  | $             | 228,993    |                  
|                                                                                                                                                                                                                                                                              |  |               |            |                  
|Commitments and contingencies (Note 12)                                                                                                                                                                                                                                       |  |               |            |                  
|                                                                                                                                                                                                                                                                              |  |               |            |                  
|Net assets                                                                                                                                                                                                                                                                    |  |               |            |                  
|Common stock, par value $0.001 per share, 100,000,000 shares authorized, 16,758,779 shares issued and 16,091,392
shares outstanding as of June 30, 2016 and 100,000,000 shares authorized,16,758,779 shares issued and 16,507,594 shares outstanding
as of December 31, 2015) |  | $             | 16         |                  
|Paid-in-capital in excess of par                                                                                                                                                                                                                                              |  |               | 249,634    |                  
|Underdistributed net investment income                                                                                                                                                                                                                                        |  |               | 9,056      |                  
|Accumulated net realized (loss) from investments                                                                                                                                                                                                                              |  |               | (28,685    | )                
|Net unrealized (loss) from investments                                                                                                                                                                                                                                        |  |               | (21,834    | )                
|Total net assets                                                                                                                                                                                                                                                              |  |               | 208,187    |                  
|Total liabilities and net assets                                                                                                                                                                                                                                              |  | $             | 437,180    |                  
|                                                                                                                                                                                                                                                                              |  |               |            |                  
|Shares of common stock outstanding                                                                                                                                                                                                                                            |  |               | 16,091,392 |                  
|Net asset value per share                                                                                                                                                                                                                                                     |  | $             | 12.94      |                  





See accompanying
notes to consolidated financial statements.

1




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



June 30, 2016 (unaudited)



($
in thousands, except share amounts)





|                                                        |  |              |           |      |  |            |        | % of Net
|------------------------------------------------------- |  | ------------ | --------- | ---- |  | ---------- | ------ | --------
|Security Description                                    |  | Par / Shares |           | Cost |  | Fair Value |        | Assets  
|Non-Control/Non-Affiliate Investments                   |  |              |           |      |  |            |        |         
|Investments - United States                             |  |              |           |      |  |            |        |         
|Common Equity                                           |  |              |           |      |  |            |        |         
|Apparel Products                                        |  |              |           |      |  |            |        |         
|Everyware Global, Inc., Common*                         |  |              | 242,035   |      |  | $          | 2,714  |         
|Total Apparel Products                                  |  |              |           |      |  |            | 2,714  |         
|                                                        |  |              |           |      |  |            |        |         
|Health Services                                         |  |              |           |      |  |            |        |         
|Juniper TGX Investment Partners, LLC, Common            |  |              | 3,146     |      |  |            | 671    |         
|Total Health Services                                   |  |              |           |      |  |            | 671    |         
|                                                        |  |              |           |      |  |            |        |         
|Miscellaneous Manufacturing                             |  |              |           |      |  |            |        |         
|Valterra Products Holdings, LLC, Class A                |  |              | 185,847   |      |  |            | 186    |         
|Valterra Products Holdings, LLC, Class B                |  |              | 20,650    |      |  |            | 21     |         
|Total Miscellaneous Manufacturing                       |  |              |           |      |  |            | 207    |         
|                                                        |  |              |           |      |  |            |        |         
|Miscellaneous Retail                                    |  |              |           |      |  |            |        |         
|Faraday Holdings, LLC, Common                           |  |              | 2,265     |      |  |            | 110    |         
|Provo Craft Holdings, LLC, Common                       |  |              | 2,436,157 |      |  |            | -      |         
|Total Miscellaneous Retail                              |  |              |           |      |  |            | 110    |         
|                                                        |  |              |           |      |  |            |        |         
|Transportation Services                                 |  |              |           |      |  |            |        |         
|EZE Trucking, LLC, Common                               |  |              | 2,898     |      |  |            | 268    |         
|Total Transportation Services                           |  |              |           |      |  |            | 268    |         
|                                                        |  |              |           |      |  |            |        |         
|Total Common Equity                                     |  |              |           |      |  | $          | 3,970  |         
|                                                        |  |              |           |      |  |            |        |         
|Preferred Equity                                        |  |              |           |      |  |            |        |         
|Consumer Finance Services                               |  |              |           |      |  |            |        |         
|Prosper Marketplace Series B Preferred Stock(1)(2)      |  |              | 912,865   |      |  | $          | 551    |         
|Total Consumer Finance Services                         |  |              |           |      |  |            | 551    |         
|                                                        |  |              |           |      |  |            |        |         
|Miscellaneous  Services                                 |  |              |           |      |  |            |        |         
|SC Academy Holdings, Inc., Preferred Equity             |  |              | 25,000    |      |  |            | 1,250  |         
|Total Miscellaneous Services                            |  |              |           |      |  |            | 1,250  |         
|                                                        |  |              |           |      |  |            |        |         
|Total Preferred Equity                                  |  |              |           |      |  | $          | 1,801  |         
|                                                        |  |              |           |      |  |            |        |         
|Debt Investments                                        |  |              |           |      |  |            |        |         
|Agricultural Services                                   |  |              |           |      |  |            |        |         
|BFN Operations LLC, Term Loan*(3)(4)                    |  |              |           |      |  |            |        |         
|LIBOR  ("L") + 10.00% PIK, 1.00% L Floor,
    8/31/2016 |  |              | 10,997    |      |  | $          | 10,339 |         
|BFN Operations LLC, Fourth Amendment Term Loan(3)(4)    |  |              |           |      |  |            |        |         
|L + 8.00% Cash, 4.00% PIK, 1.00% L
    Floor, 8/31/2016 |  |              | 849       |      |  |            | 849    |         
|Total Agricultural Services                             |  |              |           |      |  |            | 11,188 |         
|                                                        |  |              |           |      |  |            |        |         
|Automotive                                              |  |              |           |      |  |            |        |         
|Penda Corporation, Term Loan(3)                         |  |              |           |      |  |            |        |         
|14.00% Cash, 2.75% PIK, 1/26/2019                       |  |              | 7,561     |      |  |            | 7,493  |         
|Total Automotive                                        |  |              |           |      |  |            | 7,493  |         





See accompanying notes to consolidated
financial statements.

2




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



June 30, 2016 (unaudited)



(in
thousands)





|                                                                               |  |              |        |      |  |            |        | % of Net
|------------------------------------------------------------------------------ |  | ------------ | ------ | ---- |  | ---------- | ------ | --------
|Security Description                                                           |  | Par / Shares |        | Cost |  | Fair Value |        | Assets  
|Non-Control/Non-Affiliate Investments (continued)                              |  |              |        |      |  |            |        |         
|Investments - United States (continued)                                        |  |              |        |      |  |            |        |         
|Debt Investments (continued)                                                   |  |              |        |      |  |            |        |         
|Broadcasting & Entertainment                                                   |  |              |        |      |  |            |        |         
|CF Entertainment Inc. (Entertainment Studios), Term Loan*                      |  |              |        |      |  |            |        |         
|L + 11.00%,1.00% L Floor, 6/26/2020                                            |  |              | 10,084 |      |  | $          | 10,020 |         
|Sesac Holdco II, LLC, Term Loan (First Lien)*                                  |  |              |        |      |  |            |        |         
|L+ 4.25%,1.00% L Floor, 2/8/2019                                               |  |              | 1,095  |      |  |            | 1,093  |         
|Total Broadcasting & Entertainment                                             |  |              |        |      |  |            | 11,113 |         
|                                                                               |  |              |        |      |  |            |        |         
|Building & Real Estate                                                         |  |              |        |      |  |            |        |         
|ShelterLogic Corp., Term Loan*                                                 |  |              |        |      |  |            |        |         
|L+ 9.50%,1.00% L Floor, 7/30/2019                                              |  |              | 9,980  |      |  |            | 9,857  |         
|Total Building & Real Estate                                                   |  |              |        |      |  |            | 9,857  |         
|                                                                               |  |              |        |      |  |            |        |         
|Business Services                                                              |  |              |        |      |  |            |        |         
|Connexity, Inc., Term Loan*                                                    |  |              |        |      |  |            |        |         
|L+ 10.00%,1.00% L Floor, 2/13/2020                                             |  |              | 9,914  |      |  |            | 9,757  |         
|Total Business Services                                                        |  |              |        |      |  |            | 9,757  |         
|                                                                               |  |              |        |      |  |            |        |         
|Chemicals                                                                      |  |              |        |      |  |            |        |         
|Aristech Surfaces LLC, Term Loan B*                                            |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 10/17/2019                                             |  |              | 9,721  |      |  |            | 9,609  |         
|Total Chemicals                                                                |  |              |        |      |  |            | 9,609  |         
|                                                                               |  |              |        |      |  |            |        |         
|Communications                                                                 |  |              |        |      |  |            |        |         
|HC Cable OpCo, LLC, Term Loan*                                                 |  |              |        |      |  |            |        |         
|L+ 8.50%,1.00% L Floor, 7/17/2018                                              |  |              | 10,704 |      |  |            | 10,627 |         
|Sirva Worldwide, Loan*                                                         |  |              |        |      |  |            |        |         
|L+ 6.25%,1.25% L Floor, 3/27/2019                                              |  |              | 7,982  |      |  |            | 7,966  |         
|TableTop Media, LLC, Lease**                                                   |  |              |        |      |  |            |        |         
|10.00%, 10/15/2019                                                             |  |              | 5,059  |      |  |            | 5,047  |         
|U.S. Telepacific Corp., Term Loan*                                             |  |              |        |      |  |            |        |         
|L+ 5.00%,1.00% L Floor, 11/25/2020                                             |  |              | 1,981  |      |  |            | 1,970  |         
|Total Communications                                                           |  |              |        |      |  |            | 25,610 |         
|                                                                               |  |              |        |      |  |            |        |         
|Computer Programming, Data Processing, & Other Computer Related Services       |  |              |        |      |  |            |        |         
|Emtec Global Services Holdings, LLC, Term Loan**                               |  |              |        |      |  |            |        |         
|L+ 8.25%, 0.44% L, 11/30/2020                                                  |  |              | 2,799  |      |  |            | 2,766  |         
|Emtec Global Services Holdings, LLC, Revolver                                  |  |              |        |      |  |            |        |         
|L+ 8.25%, 0.46% L, 11/30/2020                                                  |  |              | 98     |      |  |            | 93     |         
|Total Computer Programming, Data Processing, & Other Computer Related Services |  |              |        |      |  |            | 2,859  |         
|                                                                               |  |              |        |      |  |            |        |         
|Consumer Finance Services                                                      |  |              |        |      |  |            |        |         
|Affiliated Wealth Partners Holdings LLC, Term Loan*                            |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 9/15/2020                                              |  |              | 3,829  |      |  |            | 3,781  |         
|PlanMember Financial Corporation, Term Loan*(1)                                |  |              |        |      |  |            |        |         
|6.50%,1.50% L Floor, 12/31/2020                                                |  |              | 1,191  |      |  |            | 1,174  |         
|Project Sunshine IV Pty Ltd (Sensis), New Term Loans*(1)                       |  |              |        |      |  |            |        |         
|L+ 7.00%,1.00% L Floor, 9/23/2019                                              |  |              | 8,868  |      |  |            | 8,678  |         
|Total Consumer Finance Services                                                |  |              |        |      |  |            | 13,633 |         
|                                                                               |  |              |        |      |  |            |        |         
|Cosmetics/Toiletries                                                           |  |              |        |      |  |            |        |         
|ActivStyle, Inc., Term Loan**                                                  |  |              |        |      |  |            |        |         
|L+ 9.00%, 0.69% L, 7/9/2020                                                    |  |              | 9,914  |      |  |            | 9,774  |         
|Total Cosmetics/Toiletries                                                     |  |              |        |      |  |            | 9,774  |         
|                                                                               |  |              |        |      |  |            |        |         
|Electrical Equipment                                                           |  |              |        |      |  |            |        |         
|AbelConn, LLC (Atrenne Computing), Term Loan*                                  |  |              |        |      |  |            |        |         
|L+ 8.50%,1.00% L Floor, 7/17/2019                                              |  |              | 10,000 |      |  |            | 9,878  |         
|Otter Products, LLC (OtterBox Holdings, Inc.), Term B Loan*                    |  |              |        |      |  |            |        |         
|L+ 4.75%,1.00% L Floor, 6/3/2020                                               |  |              | 1,888  |      |  |            | 1,852  |         
|Total Electrical Equipment                                                     |  |              |        |      |  |            | 11,730 |         
|                                                                               |  |              |        |      |  |            |        |         
|Equipment Rental & Leasing, Not Elsewhere Classified                           |  |              |        |      |  |            |        |         
|University Furnishings, L.P., Term Loan B**                                    |  |              |        |      |  |            |        |         
|L+ 6.75%, 0.50% L Floor, 12/17/2020                                            |  |              | 7,102  |      |  |            | 6,993  |         
|Total Equipment Rental & Leasing, Not Elsewhere Classified                     |  |              |        |      |  |            | 6,993  |         
|                                                                               |  |              |        |      |  |            |        |         
|Food Stores - Retail                                                           |  |              |        |      |  |            |        |         
|Specialty Bakers LLC, Term Loan*                                               |  |              |        |      |  |            |        |         
|L+ 7.50%,1.00% L Floor, 8/7/2019                                               |  |              | 9,818  |      |  |            | 9,686  |         
|Total Food Stores - Retail                                                     |  |              |        |      |  |            | 9,686  |         





See accompanying notes to consolidated
financial statements.

3




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



June 30, 2016 (unaudited)



(in
thousands)





|                                                             |  |              |        |      |  |            |        | % of Net
|------------------------------------------------------------ |  | ------------ | ------ | ---- |  | ---------- | ------ | --------
|Security Description                                         |  | Par / Shares |        | Cost |  | Fair Value |        | Assets  
|Non-Control/Non-Affiliate Investments (continued)            |  |              |        |      |  |            |        |         
|Investments - United States (continued)                      |  |              |        |      |  |            |        |         
|Debt Investments (continued)                                 |  |              |        |      |  |            |        |         
|Health Services                                              |  |              |        |      |  |            |        |         
|Aurora Diagnostics, LLC, Delayed Draw Term Loan*             |  |              |        |      |  |            |        |         
|L+ 7.13%,1.25% L Floor, 7/31/2019                            |  |              | 850    |      |  | $          | 846    |         
|Aurora Diagnostics, LLC, Delayed Draw Term Loan B*           |  |              |        |      |  |            |        |         
|L+ 7.13%,1.25% L Floor, 7/31/2019                            |  |              | 598    |      |  |            | 594    |         
|Aurora Diagnostics, LLC, Term Loan*                          |  |              |        |      |  |            |        |         
|L+ 7.13%,1.25% L Floor, 7/31/2019                            |  |              | 5,540  |      |  |            | 5,504  |         
|Forest Park Medical Center at San Antonio, LLC, Lease(4)     |  |              |        |      |  |            |        |         
|13.00%, 2/11/2020                                            |  |              | 8,982  |      |  |            | 8,832  |         
|Forest Park Medical Center at San Antonio, LLC, Term Loan(4) |  |              |        |      |  |            |        |         
|14.00%, on Demand                                            |  |              | 1,951  |      |  |            | 1,914  |         
|SCG Capital Corporation (Radiation Therapy), Term Note       |  |              |        |      |  |            |        |         
|12.00%, 5/1/2017                                             |  |              | 2,282  |      |  |            | 2,282  |         
|Theragenics Corporation, Term Loan**                         |  |              |        |      |  |            |        |         
|L+ 12.00%,1.00% L Floor, 12/23/2020                          |  |              | 6,158  |      |  |            | 6,063  |         
|Walnut Hill Physicians' Hospital, LLC, Lease                 |  |              |        |      |  |            |        |         
|12.50%, 4/30/2019                                            |  |              | 6,765  |      |  |            | 6,765  |         
|Total Health Services                                        |  |              |        |      |  |            | 32,800 |         
|                                                             |  |              |        |      |  |            |        |         
|Insurance Agents                                             |  |              |        |      |  |            |        |         
|Worley Claims Services, LLC, Term Loan*                      |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 10/31/2020                           |  |              | 10,343 |      |  |            | 10,281 |         
|Total Insurance Agents                                       |  |              |        |      |  |            | 10,281 |         
|                                                             |  |              |        |      |  |            |        |         
|Metal Mining                                                 |  |              |        |      |  |            |        |         
|Metal Services LLC (Phoenix), New Term Loans*                |  |              |        |      |  |            |        |         
|L+ 7.50%,1.00% L Floor, 6/30/2019                            |  |              | 6,112  |      |  |            | 6,026  |         
|Total Metal Mining                                           |  |              |        |      |  |            | 6,026  |         
|                                                             |  |              |        |      |  |            |        |         
|Miscellaneous Manufacturing                                  |  |              |        |      |  |            |        |         
|AP Gaming I, LLC, Term B Loan*                               |  |              |        |      |  |            |        |         
|L+ 8.25%,1.00% L Floor, 12/21/2020                           |  |              | 10,170 |      |  |            | 10,035 |         
|A.S.V., Inc., Term Loan*                                     |  |              |        |      |  |            |        |         
|L+ 11.00%, 0.50% L Floor, 12/19/2019                         |  |              | 7,951  |      |  |            | 7,841  |         
|CR Brands, Inc., Term Loan*                                  |  |              |        |      |  |            |        |         
|L+ 9.25%,1.00% L Floor, 8/23/2017                            |  |              | 10,061 |      |  |            | 9,994  |         
|Gardner Denver, Inc., Initial Dollar Term Loan*              |  |              |        |      |  |            |        |         
|L+ 3.25%,1.00% L Floor, 7/30/2020                            |  |              | 1,985  |      |  |            | 1,882  |         
|Kranos
Acquisition Corp., Term Loan*                         |  |              |        |      |  |            |        |         
|L+ 10.00%,1.00% L Floor, 6/15/2017                           |  |              | 8,818  |      |  |            | 8,783  |         
|Lexmark Carpet Mills, Inc., Term Loan*                       |  |              |        |      |  |            |        |         
|L+ 10.00%,1.00% L Floor, 12/19/2019                          |  |              | 9,774  |      |  |            | 9,605  |         
|PCCR USA, Inc., Term Loan A*                                 |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 12/1/2019                            |  |              | 6,738  |      |  |            | 6,646  |         
|PCCR USA, Inc., Term Loan B*                                 |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 12/1/2019                            |  |              | 1,753  |      |  |            | 1,723  |         
|Pelican Products, Inc., Term Loan*                           |  |              |        |      |  |            |        |         
|L+ 4.25%,1.00% L Floor, 4/10/2020                            |  |              | 1,950  |      |  |            | 1,934  |         
|Profusion Industries, LLC, Term Loan*                        |  |              |        |      |  |            |        |         
|L+ 9.00%, 0.50% L Floor, 6/19/2020                           |  |              | 10,043 |      |  |            | 9,883  |         
|Texas Hydraulics Holding, Inc., Term Loan**                  |  |              |        |      |  |            |        |         
|L+ 6.50%, 0.50% L Floor, 2/17/2021                           |  |              | 8,200  |      |  |            | 8,048  |         
|Total Miscellaneous Manufacturing                            |  |              |        |      |  |            | 76,374 |         





See accompanying notes to consolidated
financial statements.

4




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



June 30, 2016 (unaudited)



(in
thousands)





|                                                         |  |              |        |      |  |            |        | % of Net
|-------------------------------------------------------- |  | ------------ | ------ | ---- |  | ---------- | ------ | --------
|Security Description                                     |  | Par / Shares |        | Cost |  | Fair Value |        | Assets  
|Non-Control/Non-Affiliate Investments (continued)        |  |              |        |      |  |            |        |         
|Investments - United States (continued)                  |  |              |        |      |  |            |        |         
|Debt Investments (continued)                             |  |              |        |      |  |            |        |         
|Miscellaneous Retail                                     |  |              |        |      |  |            |        |         
|360 Holdings III Corp., Term Loan*                       |  |              |        |      |  |            |        |         
|L+ 9.00%, 1.00% L Floor, 10/1/2021                       |  |              | 7,345  |      |  | $          | 7,077  |         
|Confluence Outdoor, LLC, Term Loan*                      |  |              |        |      |  |            |        |         
|L+ 7.00%,1.00% L Floor, 4/18/2019                        |  |              | 6,657  |      |  |            | 6,592  |         
|Confluence Outdoor, LLC, Delayed Draw Term Loan          |  |              |        |      |  |            |        |         
|L+ 7.00%,1.00% L Floor, 4/18/2019                        |  |              | 999    |      |  |            | 989    |         
|HRI Holding Corp. (Houlihans Restaurants), Term Loan*    |  |              |        |      |  |            |        |         
|L+ 6.25%,1.00% L Floor, 12/17/2020                       |  |              | 6,800  |      |  |            | 6,673  |         
|Interior Specialists, Inc., Term Loan*                   |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 6/30/2020                        |  |              | 10,144 |      |  |            | 9,982  |         
|League Collegiate Holdings, LLC, Term Loan*              |  |              |        |      |  |            |        |         
|L+ 8.00%, 0.50% L Floor, 6/28/2021                       |  |              | 7,700  |      |  |            | 7,585  |         
|League
    Collegiate Holdings, LLC, Revolver*           |  |              |        |      |  |            |        |         
|L+ 8.00%,0.50% L Floor, 6/28/2021                        |  |              | 154    |      |  |            | 121    |         
|PD
Products, LLC, Term Loan*                             |  |              |        |      |  |            |        |         
|L+ 10.50%,1.50% L Floor, 10/4/2018                       |  |              | 9,379  |      |  |            | 9,295  |         
|PD Products, LLC, Revolver                               |  |              |        |      |  |            |        |         
|L+ 10.50%,1.50% L Floor, 10/4/2018                       |  |              | 180    |      |  |            | 166    |         
|Sears Holdings Corporation, Term Loan*                   |  |              |        |      |  |            |        |         
|L+ 7.50%, 1.00% L Floor, 7/20/2020                       |  |              | 1,600  |      |  |            | 1,555  |         
|Total Miscellaneous Retail                               |  |              |        |      |  |            | 50,035 |         
|                                                         |  |              |        |      |  |            |        |         
|Miscellaneous Services                                   |  |              |        |      |  |            |        |         
|Simmons Research LLC, Term Loan*                         |  |              |        |      |  |            |        |         
|L+ 10.50%, 0.69% L, 12/11/2020                           |  |              | 3,860  |      |  |            | 3,791  |         
|Sprint Industrial Holdings, LLC, Term Loan (First Lien)* |  |              |        |      |  |            |        |         
|L+ 5.75%,1.25% L Floor, 5/14/2019                        |  |              | 4,799  |      |  |            | 4,781  |         
|YourMembership Holding Company, Term Loan A**            |  |              |        |      |  |            |        |         
|L+ 7.00%,1.00% L Floor, 9/12/2019                        |  |              | 9,755  |      |  |            | 9,701  |         
|Total Miscellaneous Services                             |  |              |        |      |  |            | 18,273 |         
|                                                         |  |              |        |      |  |            |        |         
|Oil & Gas                                                |  |              |        |      |  |            |        |         
|Badlands Production Company (fka Gasco), Term Loan*      |  |              |        |      |  |            |        |         
|L+ 17.50%,1.00% L Floor, 5/14/2018                       |  |              | 10,500 |      |  |            | 10,367 |         
|Iracore International Holdings, Inc., Term Loan*         |  |              |        |      |  |            |        |         
|L+ 9.00%,1.00% L Floor, 7/10/2020                        |  |              | 8,878  |      |  |            | 8,770  |         
|Rooster Energy Ltd., Term Loan*(3)                       |  |              |        |      |  |            |        |         
|L+ 11.50%, Cash, 8.00% PIK, 1.50% L Floor, 6/25/2018     |  |              | 5,676  |      |  |            | 5,620  |         
|Total Oil & Gas                                          |  |              |        |      |  |            | 24,757 |         
|                                                         |  |              |        |      |  |            |        |         
|Printing & Publishing                                    |  |              |        |      |  |            |        |         
|Dodge Data & Analytics LLC, Term Loan*                   |  |              |        |      |  |            |        |         
|L+ 8.75%,1.00% L Floor, 10/31/2019                       |  |              | 9,154  |      |  |            | 9,032  |         
|Total Printing & Publishing                              |  |              |        |      |  |            | 9,032  |         





See accompanying notes to consolidated
financial statements.

5




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



June 30, 2016 (unaudited)



(in
thousands)





|                                                                               |  |              |        |      |  |            |         | % of Net
|------------------------------------------------------------------------------ |  | ------------ | ------ | ---- |  | ---------- | ------- | --------
|Security Description                                                           |  | Par / Shares |        | Cost |  | Fair Value |         | Assets  
|Non-Control/Non-Affiliate Investments (continued)                              |  |              |        |      |  |            |         |         
|Investments - United States (continued)                                        |  |              |        |      |  |            |         |         
|Debt Investments (continued)                                                   |  |              |        |      |  |            |         |         
|Specialty Services                                                             |  |              |        |      |  |            |         |         
|Del Mar Recovery Solutions, Inc., Term Loan**                                  |  |              |        |      |  |            |         |         
|L+ 8.50%, 0.50% L Floor, 6/27/2021                                             |  |              | 8,580  |      |  | $          | 8,430   |         
|Del Mar Recovery Solutions, Inc., Revolver                                     |  |              |        |      |  |            |         |         
|L+ 8.50%, 0.50% L Floor, 6/27/2021                                             |  |              | 165    |      |  |            | 142     |         
|Vistronix, LLC, Term Loan*                                                     |  |              |        |      |  |            |         |         
|L+ 8.50%, 0.50% L Floor, 12/4/2018                                             |  |              | 9,383  |      |  |            | 9,337   |         
|Vistronix, LLC, Revolver                                                       |  |              |        |      |  |            |         |         
|L+ 8.50%, 0.50% L Floor, 12/4/2018                                             |  |              | 875    |      |  |            | 871     |         
|Total Specialty Services                                                       |  |              |        |      |  |            | 18,780  |         
|                                                                               |  |              |        |      |  |            |         |         
|Transportation Services                                                        |  |              |        |      |  |            |         |         
|Fleetgistics Holdings, Inc., Term Loan*                                        |  |              |        |      |  |            |         |         
|L+ 6.13%,2.00% L Floor, 12/31/2018                                             |  |              | 964    |      |  |            | 964     |         
|Gruden Acquisition, Inc., Term Loan (First Lien)*                              |  |              |        |      |  |            |         |         
|L+ 4.75%,1.00% L Floor, 8/18/2022                                              |  |              | 1,990  |      |  |            | 1,954   |         
|MXD Group, Inc. (fka Exel Direct Inc.), Term Loan*(3)                          |  |              |        |      |  |            |         |         
|L+ 5.00% Cash, 8.00% PIK, 1.00% L Floor, 5/31/2018                             |  |              | 14,915 |      |  |            | 14,807  |         
|Raymond Express International, LLC, Term Loan*                                 |  |              |        |      |  |            |         |         
|L+ 7.75%,1.75% L Floor, 2/28/2018                                              |  |              | 1,641  |      |  |            | 1,635   |         
|Total Transportation Services                                                  |  |              |        |      |  |            | 19,360  |         
|                                                                               |  |              |        |      |  |            |         |         
|Total Debt Investments                                                         |  |              |        |      |  | $          | 405,020 |         
|                                                                               |  |              |        |      |  |            |         |         
|Financial Assets                                                               |  |              |        |      |  |            |         |         
|Consumer Finance Services                                                      |  |              |        |      |  |            |         |         
|GLC Trust 2013-2 Consumer Loan Pool(1)(5)                                      |  |              | 11,982 |      |  | $          | 11,982  |         
|Total Consumer Finance Services                                                |  |              |        |      |  |            | 11,982  |         
|                                                                               |  |              |        |      |  |            |         |         
|Total Financial Assets                                                         |  |              |        |      |  | $          | 11,982  |         
|                                                                               |  |              |        |      |  |            |         |         
|Unfunded Commitments                                                           |  |              |        |      |  |            |         |         
|Communications                                                                 |  |              |        |      |  |            |         |         
|HC
Cable OpCo, LLC, Revolver                                                   |  |              |        |      |  |            |         |         
|0.50%, 7/17/2018                                                               |  |              | 955    |      |  | $          | -       |         
|Total Communications                                                           |  |              |        |      |  |            | -       |         
|                                                                               |  |              |        |      |  |            |         |         
|Computer Programming, Data Processing, & Other Computer Related Services       |  |              |        |      |  |            |         |         
|Emtec Global Services Holdings, LLC, Revolver(6)                               |  |              |        |      |  |            |         |         
|0.00%, 11/30/2020                                                              |  |              | 360    |      |  |            | -       |         
|Total Computer Programming, Data Processing, & Other Computer Related Services |  |              |        |      |  |            | -       |         
|                                                                               |  |              |        |      |  |            |         |         
|Health Services                                                                |  |              |        |      |  |            |         |         
|Aurora Diagnostics, LLC, Revolver(6)                                           |  |              |        |      |  |            |         |         
|0.38%, 7/31/2019                                                               |  |              | 1,020  |      |  |            | (7      | )       
|Total Health Services                                                          |  |              |        |      |  |            | (7      | )       
|                                                                               |  |              |        |      |  |            |         |         
|Miscellaneous Retail                                                           |  |              |        |      |  |            |         |         
|League
    Collegiate Holdings, LLC, Revolver(6)                               |  |              |        |      |  |            |         |         
|0.75%, 6/28/2021                                                               |  |              | 2,046  |      |  |            | -       |         
|PD
Products, LLC, Revolver                                                     |  |              |        |      |  |            |         |         
|0.50%, 10/4/2018                                                               |  |              | 1,460  |      |  |            | -       |         
|Total Miscellaneous Retail                                                     |  |              |        |      |  |            | -       |         





See accompanying notes to consolidated
financial statements.

6




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



June 30, 2016 (unaudited)



(in
thousands)





|                                                                      |  |              |       |      |  |            |         | % of Net
|--------------------------------------------------------------------- |  | ------------ | ----- | ---- |  | ---------- | ------- | --------
|Security Description                                                  |  | Par / Shares |       | Cost |  | Fair Value |         | Assets  
|Non-Control/Non-Affiliate Investments (continued)                     |  |              |       |      |  |            |         |         
|Investments - United States (continued)                               |  |              |       |      |  |            |         |         
|Unfunded Commitments (continued)                                      |  |              |       |      |  |            |         |         
|Miscellaneous Services                                                |  |              |       |      |  |            |         |         
|Del
    Mar Recovery Solutions, Inc., Revolver(6)                     |  |              |       |      |  |            |         |         
|0.75%, 6/27/2021                                                      |  |              | 1,155 |      |  |            | -       |         
|YourMembership Holding Company, Revolver(6)                           |  |              |       |      |  |            |         |         
|0.00%, 9/12/2019                                                      |  |              | 441   |      |  |            | (2      | )       
|Total Miscellaneous Services                                          |  |              |       |      |  |            | (2      | )       
|                                                                      |  |              |       |      |  |            |         |         
|Transportation Services                                               |  |              |       |      |  |            |         |         
|Raymond Express International, LLC, Revolver (6)                      |  |              |       |      |  |            |         |         
|0.50%, 2/28/2018                                                      |  |              | 215   |      |  |            | -       |         
|Total Transportation Services                                         |  |              |       |      |  |            | -       |         
|                                                                      |  |              |       |      |  |            |         |         
|Total Unfunded Commitments                                            |  |              |       |      |  | $          | (9      | )       
|                                                                      |  |              |       |      |  |            |         |         
|Total Non-Control/Non-Affiliate Investments                           |  |              |       |      |  | $          | 422,764 |         
|                                                                      |  |              |       |      |  |            |         |         
|Non-Control/Affiliate Investments(8)                                  |  |              |       |      |  |            |         |         
|Investments - United States                                           |  |              |       |      |  |            |         |         
|Common Equity                                                         |  |              |       |      |  |            |         |         
|Miscellaneous Services                                                |  |              |       |      |  |            |         |         
|Speed Commerce Investment Partners LLC, Class A Unit*                 |  |              | 1,780 |      |  | $          | 1,693   |         
|Total Miscellaneous Services                                          |  |              |       |      |  |            | 1,693   |         
|                                                                      |  |              |       |      |  |            |         |         
|Total Common Equity                                                   |  |              |       |      |  | $          | 1,693   |         
|                                                                      |  |              |       |      |  |            |         |         
|Debt Investments                                                      |  |              |       |      |  |            |         |         
|Miscellaneous Services                                                |  |              |       |      |  |            |         |         
|Speed Commerce Operating Company LLC, Closing Date Term
    Loan B(3) |  |              |       |      |  |            |         |         
|L+ 8.00% Cash, 3.00% PIK, 12/8/2017                                   |  |              | 1,784 |      |  | $          | 1,784   |         
|Speed Commerce Operating Company LLC, Delayed Draw Term
    Loan B(3) |  |              |       |      |  |            |         |         
|L+ 8.00% Cash, 3.00% PIK, 12/8/2017                                   |  |              | 200   |      |  |            | 200     |         
|Total Miscellaneous Services                                          |  |              |       |      |  |            | 1,984   |         
|                                                                      |  |              |       |      |  |            |         |         
|Total Debt Investments                                                |  |              |       |      |  | $          | 1,984   |         
|                                                                      |  |              |       |      |  |            |         |         
|Unfunded Commitments                                                  |  |              |       |      |  |            |         |         
|Miscellaneous Services                                                |  |              |       |      |  |            |         |         
|Speed Commerce Operating Company LLC, Delayed Draw
Term Loan B        |  |              |       |      |  |            |         |         
|0.00%, 12/8/2017                                                      |  |              | 1,016 |      |  | $          | -       |         
|Total Miscellaneous Services                                          |  |              |       |      |  |            | -       |         
|                                                                      |  |              |       |      |  |            |         |         
|Total Unfunded Commitments                                            |  |              |       |      |  | $          | -       |         
|                                                                      |  |              |       |      |  |            |         |         
|Total Non-Control/Affiliate
    Investments                           |  |              |       |      |  | $          | 3,677   |         
|                                                                      |  |              |       |      |  |            |         |         
|Total Investments - United States                                     |  |              |       |      |  | $          | 426,441 |         







_____________



|*
        ** |  | Denotes that all or a portion of the investment is held as collateral
        by the CLO (see Note 7).
        Denotes that all or a portion of the loan is held by Garrison
        SBIC.
        L = London Interbank Offered Rate.
        P = Prime Rate
|------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(1) |  | Not a qualifying asset under Section 55(a) of the Investment
    Company Act of 1940, as amended (“the 1940 Act”).  Under the 1940 Act, the Company may not
    acquire any     non-qualifying asset     unless,     at     the     time     the     acquisition is made, qualifying assets
    represent at     least 70% of the     Company’s total     assets.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Net of incentive fee payable to a third party equal to 20% of any distribution after the Company has received its full net capital investment plus a 12% preferred return in GLC Trust 2013-2 and Prosper Marketplace Series B Preferred Stock.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Coupon is payable in cash, and/or payment-in-kind (“PIK”), or a combination thereof.
|--- |  | ------------------------------------------------------------------------------------



|(4) |  | Investment is currently not income producing and placed on non-accrual status.
|--- |  | ------------------------------------------------------------------------------



|(5) |  | GLC Trust 2013-2 includes 2,077 small balance consumer loans with an average par of $5,769, a weighted average rate of 15.7% and a weighted average maturity of August 2, 2018. See Note 4 for additional information. See Exhibit 99.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 for detail on underlying loans.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) |  | The negative fair value is the result of the unfunded commitments being valued below par. These amounts may or may not be funded to the borrowing party currently or in the future.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As required by the 1940 Act, investments are classified by level of control. “Control
Investments” are investments in those companies that the Company is deemed to control as defined in the 1940 Act. “Affiliate
Investments” are investments in those companies that are affiliated companies, as defined in the 1940 Act, other than Control
Investments. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments.



Generally, under the 1940 Act, the Company is deemed to control a company in which it
has invested if it owns more than 25% of the voting securities of such company. The Company is deemed to be an affiliate of a company
in which it has invested if it owns 5% or more of the voting securities of such company.



All debt investments were income producing as of June 30, 2016,
unless otherwise noted. Common and preferred equity investments are non income-producing unless otherwise noted.



See accompanying notes to consolidated
financial statements.



7




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



December 31, 2015



(in
thousands, except share amounts)





|Security Description                               |  | Par / Shares |           | Cost |  | Fair Value |        | % of Net  Assets
|-------------------------------------------------- |  | ------------ | --------- | ---- |  | ---------- | ------ | ----------------
|Non-Control/Non-Affiliate Investments              |  |              |           |      |  |            |        |                 
|Investments - United States                        |  |              |           |      |  |            |        |                 
|Common Equity                                      |  |              |           |      |  |            |        |                 
|Apparel Products                                   |  |              |           |      |  |            |        |                 
|Everyware Global, Inc., Common                     |  |              | 242,035   |      |  | $          | 2,714  |                 
|Total Apparel Products                             |  |              |           |      |  |            | 2,714  |                 
|                                                   |  |              |           |      |  |            |        |                 
|Health Services                                    |  |              |           |      |  |            |        |                 
|Juniper TGX Investment Partners, LLC, Common       |  |              | 3,146     |      |  |            | 671    |                 
|Total Health Services                              |  |              |           |      |  |            | 671    |                 
|                                                   |  |              |           |      |  |            |        |                 
|Miscellaneous Manufacturing                        |  |              |           |      |  |            |        |                 
|Valterra Products Holdings, LLC, Class A           |  |              | 185,847   |      |  |            | 186    |                 
|Valterra Products Holdings, LLC, Class B           |  |              | 20,650    |      |  |            | 21     |                 
|Total Miscellaneous Manufacturing                  |  |              |           |      |  |            | 207    |                 
|                                                   |  |              |           |      |  |            |        |                 
|Miscellaneous Retail                               |  |              |           |      |  |            |        |                 
|Faraday Holdings, LLC, Common                      |  |              | 2,265     |      |  |            | 110    |                 
|Provo Craft Holdings, LLC, Common                  |  |              | 2,436,157 |      |  |            | -      |                 
|Total Miscellaneous Retail                         |  |              |           |      |  |            | 110    |                 
|                                                   |  |              |           |      |  |            |        |                 
|Transportation Services                            |  |              |           |      |  |            |        |                 
|EZE Trucking, LLC, Common                          |  |              | 2,898     |      |  |            | 268    |                 
|Total Transportation Services                      |  |              |           |      |  |            | 268    |                 
|                                                   |  |              |           |      |  |            |        |                 
|Total Common Equity                                |  |              |           |      |  | $          | 3,970  |                 
|                                                   |  |              |           |      |  |            |        |                 
|Preferred Equity                                   |  |              |           |      |  |            |        |                 
|Consumer Finance Services                          |  |              |           |      |  |            |        |                 
|Prosper Marketplace Series B Preferred Stock(1)(2) |  |              | 182,573   |      |  | $          | 551    |                 
|Total Consumer Finance Services                    |  |              |           |      |  |            | 551    |                 
|                                                   |  |              |           |      |  |            |        |                 
|Miscellaneous  Services                            |  |              |           |      |  |            |        |                 
|SC Academy Holdings, Inc., Preferred Equity        |  |              | 25,000    |      |  |            | 1,250  |                 
|Total Miscellaneous Services                       |  |              |           |      |  |            | 1,250  |                 
|                                                   |  |              |           |      |  |            |        |                 
|Total Preferred Equity                             |  |              |           |      |  | $          | 1,801  |                 
|                                                   |  |              |           |      |  |            |        |                 
|Debt Investments                                   |  |              |           |      |  |            |        |                 
|Agricultural Services                              |  |              |           |      |  |            |        |                 
|BFN Operations LLC , Term Loan*(4)                 |  |              |           |      |  |            |        |                 
|LIBOR  ("L") + 10.00%,1.00% Floor, 12/29/2017      |  |              | 10,500    |      |  |            | 10,339 |                 
|Total Agricultural Services                        |  |              |           |      |  |            | 10,339 |                 
|                                                   |  |              |           |      |  |            |        |                 
|Automotive                                         |  |              |           |      |  |            |        |                 
|Penda Corporation, Term Loan(3)                    |  |              |           |      |  |            |        |                 
|14.00% Cash, 2.00% PIK, 1/26/2019                  |  |              | 7,512     |      |  |            | 7,431  |                 
|Total Automotive                                   |  |              |           |      |  |            | 7,431  |                 











8




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



December 31, 2015



(in thousands)



|                                                                               |  |              |        |      |  |            |        | % of Net
|------------------------------------------------------------------------------ |  | ------------ | ------ | ---- |  | ---------- | ------ | --------
|Security Description                                                           |  | Par / Shares |        | Cost |  | Fair Value |        | Assets  
|Non-Control/Non-Affiliate Investments (continued)                              |  |              |        |      |  |            |        |         
|Investments - United States (continued)                                        |  |              |        |      |  |            |        |         
|Debt Investments (continued)                                                   |  |              |        |      |  |            |        |         
|Broadcasting & Entertainment                                                   |  |              |        |      |  |            |        |         
|CF Entertainment Inc. (Entertainment Studios), Term Loan*                      |  |              |        |      |  |            |        |         
|L + 11.00%,1.00% L Floor, 6/26/2020                                            |  |              | 10,135 |      |  | $          | 10,063 |         
|Sesac Holdco II, LLC, Term Loan (First Lien)*                                  |  |              |        |      |  |            |        |         
|L+ 4.25%,1.00% L Floor, 2/8/2019                                               |  |              | 1,100  |      |  |            | 1,098  |         
|Total Broadcasting & Entertainment                                             |  |              |        |      |  |            | 11,161 |         
|                                                                               |  |              |        |      |  |            |        |         
|Building & Real Estate                                                         |  |              |        |      |  |            |        |         
|ShelterLogic Corp., Term Loan*                                                 |  |              |        |      |  |            |        |         
|L+ 9.50%,1.00% L Floor, 7/30/2019                                              |  |              | 10,106 |      |  |            | 9,962  |         
|Total Building & Real Estate                                                   |  |              |        |      |  |            | 9,962  |         
|                                                                               |  |              |        |      |  |            |        |         
|Business Services                                                              |  |              |        |      |  |            |        |         
|Connexity, Inc., Term Loan*                                                    |  |              |        |      |  |            |        |         
|L+ 10.00%,1.00% L Floor, 2/13/2020                                             |  |              | 10,171 |      |  |            | 9,989  |         
|Total Business Services                                                        |  |              |        |      |  |            | 9,989  |         
|                                                                               |  |              |        |      |  |            |        |         
|Chemicals                                                                      |  |              |        |      |  |            |        |         
|Aristech Surfaces LLC, Term Loan B*                                            |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 10/17/2019                                             |  |              | 10,238 |      |  |            | 10,102 |         
|Total Chemicals                                                                |  |              |        |      |  |            | 10,102 |         
|                                                                               |  |              |        |      |  |            |        |         
|Communications                                                                 |  |              |        |      |  |            |        |         
|HC Cable OpCo, LLC, Term Loan*                                                 |  |              |        |      |  |            |        |         
|L+ 8.50%,1.00% L Floor, 7/17/2018                                              |  |              | 10,760 |      |  |            | 10,665 |         
|Sirva Worldwide, Loan*                                                         |  |              |        |      |  |            |        |         
|L+ 6.25%,1.25% L Floor, 3/27/2019                                              |  |              | 8,090  |      |  |            | 8,069  |         
|TableTop Media, LLC, Lease**                                                   |  |              |        |      |  |            |        |         
|10.00%, 10/15/2019                                                             |  |              | 5,729  |      |  |            | 5,716  |         
|U.S. Telepacific Corp., Term Loan*                                             |  |              |        |      |  |            |        |         
|L+ 5.00%,1.00% L Floor, 11/25/2020                                             |  |              | 1,995  |      |  |            | 1,983  |         
|Total Communications                                                           |  |              |        |      |  |            | 26,433 |         
|                                                                               |  |              |        |      |  |            |        |         
|Consumer Finance Services                                                      |  |              |        |      |  |            |        |         
|Affiliated Wealth Partners Holdings LLC, Term Loan*                            |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 9/15/2020                                              |  |              | 4,236  |      |  |            | 4,177  |         
|PlanMember Financial Corporation, Term Loan*(1)                                |  |              |        |      |  |            |        |         
|L+ 6.50%,1.50% L Floor, 12/31/2020                                             |  |              | 1,245  |      |  |            | 1,231  |         
|Project Sunshine IV Pty Ltd (Sensis), New Term Loans*(1)                       |  |              |        |      |  |            |        |         
|L+ 7.00%,1.00% L Floor, 9/23/2019                                              |  |              | 3,000  |      |  |            | 2,853  |         
|Project Sunshine IV Pty Ltd (Sensis), New Term Loans*(1)                       |  |              |        |      |  |            |        |         
|L+ 7.00%,1.00% L Floor, 9/23/2019                                              |  |              | 6,627  |      |  |            | 6,584  |         
|Total Consumer Finance Services                                                |  |              |        |      |  |            | 14,845 |         
|                                                                               |  |              |        |      |  |            |        |         
|Computer Programming, Data Processing, & Other Computer Related Services       |  |              |        |      |  |            |        |         
|Emtec Global Services Holdings, LLC, Term Loan**                               |  |              |        |      |  |            |        |         
|L+ 8.25%, 0.25% L Floor 11/30/2020                                             |  |              | 2,834  |      |  |            | 2,797  |         
|Emtec Global Services Holdings, LLC, Revolver                                  |  |              |        |      |  |            |        |         
|L+ 8.25%, 0.25% L Floor 11/30/2020                                             |  |              | 131    |      |  |            | 131    |         
|Total Computer Programming, Data Processing, & Other Computer Related Services |  |              |        |      |  |            | 2,928  |         
|                                                                               |  |              |        |      |  |            |        |         
|Cosmetics/Toiletries                                                           |  |              |        |      |  |            |        |         
|ActivStyle, Inc., Term Loan**                                                  |  |              |        |      |  |            |        |         
|L+ 9.00%, 0.50% L Floor, 7/9/2020                                              |  |              | 10,171 |      |  |            | 10,010 |         
|Total Cosmetics/Toiletries                                                     |  |              |        |      |  |            | 10,010 |         
|                                                                               |  |              |        |      |  |            |        |         
|Electrical Equipment                                                           |  |              |        |      |  |            |        |         
|AbelConn, LLC (Atrenne Computing), Term Loan*                                  |  |              |        |      |  |            |        |         
|L+ 8.50%,1.00% L Floor, 7/17/2019                                              |  |              | 10,375 |      |  |            | 10,228 |         
|Otter Products, LLC (OtterBox Holdings, Inc.), Term B Loan*                    |  |              |        |      |  |            |        |         
|L+ 4.75%,1.00% L Floor, 6/3/2020                                               |  |              | 2,000  |      |  |            | 1,957  |         
|Total Electrical Equipment                                                     |  |              |        |      |  |            | 12,185 |         
|                                                                               |  |              |        |      |  |            |        |         
|Equipment Rental & Leasing, Not Elsewhere Classified                           |  |              |        |      |  |            |        |         
|University Furnishings, L.P., Term Loan B**                                    |  |              |        |      |  |            |        |         
|L+ 6.75%, 0.50% L Floor, 12/17/2020                                            |  |              | 7,102  |      |  |            | 6,985  |         
|Total Equipment Rental & Leasing, Not Elsewhere Classified                     |  |              |        |      |  |            | 6,985  |         
|                                                                               |  |              |        |      |  |            |        |         
|Food Stores - Retail                                                           |  |              |        |      |  |            |        |         
|Specialty Bakers LLC, Term Loan*                                               |  |              |        |      |  |            |        |         
|L+ 7.25%,1.00% L Floor, 8/7/2019                                               |  |              | 9,435  |      |  |            | 9,290  |         
|Total Food Stores - Retail                                                     |  |              |        |      |  |            | 9,290  |         







9




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



December 31, 2015



(in thousands)



|                                                             |  |              |        |      |  |            |        | % of Net
|------------------------------------------------------------ |  | ------------ | ------ | ---- |  | ---------- | ------ | --------
|Security Description                                         |  | Par / Shares |        | Cost |  | Fair Value |        | Assets  
|Non-Control/Non-Affiliate Investments (continued)            |  |              |        |      |  |            |        |         
|Investments - United States (continued)                      |  |              |        |      |  |            |        |         
|Debt Investments (continued)                                 |  |              |        |      |  |            |        |         
|Health Services                                              |  |              |        |      |  |            |        |         
|Aurora Diagnostics, LLC, Delayed Draw Term Loan              |  |              |        |      |  |            |        |         
|L+ 7.13%,1.25% L Floor, 7/31/2019                            |  |              | 850    |      |  | $          | 846    |         
|Aurora Diagnostics, LLC, Term Loan*                          |  |              |        |      |  |            |        |         
|L+ 7.13%,1.25% L Floor, 7/31/2019                            |  |              | 5,574  |      |  |            | 5,532  |         
|eResearchTechnology, Inc., Term Loan*                        |  |              |        |      |  |            |        |         
|L+ 4.50%,1.00% L Floor, 5/8/2022                             |  |              | 1,995  |      |  |            | 1,980  |         
|Forest Park Medical Center at Fort Worth, LLC, Lease(4)      |  |              |        |      |  |            |        |         
|13.00%, 2/11/2020                                            |  |              | 9,246  |      |  |            | 9,114  |         
|Forest Park Medical Center at Fort Worth, LLC, Term Loan(4)  |  |              |        |      |  |            |        |         
|14.00%, on Demand                                            |  |              | 344    |      |  |            | 337    |         
|Forest Park Medical Center at San Antonio, LLC, Lease(4)     |  |              |        |      |  |            |        |         
|13.00%, 2/11/2020                                            |  |              | 8,982  |      |  |            | 8,832  |         
|Forest Park Medical Center at San Antonio, LLC, Term Loan(4) |  |              |        |      |  |            |        |         
|14.00%, on Demand                                            |  |              | 1,951  |      |  |            | 1,914  |         
|SCG Capital Corporation (Radiation Therapy), Term Note       |  |              |        |      |  |            |        |         
|12.00%, 5/1/2017                                             |  |              | 3,656  |      |  |            | 3,656  |         
|Theragenics Corporation, Term Loan**                         |  |              |        |      |  |            |        |         
|L+ 12.00%,1.00% L Floor, 12/23/2020                          |  |              | 6,324  |      |  |            | 6,216  |         
|Walnut Hill Physicians' Hospital, LLC, Lease                 |  |              |        |      |  |            |        |         
|12.50%, 4/30/2019                                            |  |              | 7,725  |      |  |            | 7,725  |         
|Total Health Services                                        |  |              |        |      |  |            | 46,152 |         
|                                                             |  |              |        |      |  |            |        |         
|Insurance Agents                                             |  |              |        |      |  |            |        |         
|Worley Claims Services, LLC, Term Loan*                      |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 10/31/2020                           |  |              | 10,395 |      |  |            | 10,325 |         
|Total Insurance Agents                                       |  |              |        |      |  |            | 10,325 |         
|                                                             |  |              |        |      |  |            |        |         
|Metal Mining                                                 |  |              |        |      |  |            |        |         
|Metal Services LLC (Phoenix), New Term Loans*                |  |              |        |      |  |            |        |         
|L+ 5.00%,1.00% L Floor, 6/30/2017                            |  |              | 1,995  |      |  |            | 1,946  |         
|Total Metal Mining                                           |  |              |        |      |  |            | 1,946  |         
|                                                             |  |              |        |      |  |            |        |         
|Miscellaneous Manufacturing                                  |  |              |        |      |  |            |        |         
|AP Gaming I, LLC, Term B Loan*                               |  |              |        |      |  |            |        |         
|L+ 8.25%,1.00% L Floor, 12/21/2020                           |  |              | 10,222 |      |  |            | 10,071 |         
|A.S.V., Inc., Term Loan*                                     |  |              |        |      |  |            |        |         
|L+ 9.50%,1.00% L Floor, 12/19/2019                           |  |              | 9,138  |      |  |            | 8,993  |         
|CR Brands, Inc., Term Loan*                                  |  |              |        |      |  |            |        |         
|L+ 9.25%,1.00% L Floor, 8/23/2017                            |  |              | 10,500 |      |  |            | 10,398 |         
|Gardner Denver, Inc., Initial Dollar Term Loan*              |  |              |        |      |  |            |        |         
|L+ 3.25%,1.00% L Floor, 7/30/2020                            |  |              | 1,995  |      |  |            | 1,879  |         
|Kranos Acquisition Corp., Term Loan*(3)                      |  |              |        |      |  |            |        |         
|L+ 10.00% Cash,1.00% L Floor, 6/15/2017                      |  |              | 9,338  |      |  |            | 9,282  |         
|Lexmark Carpet Mills, Inc., Term Loan*                       |  |              |        |      |  |            |        |         
|L+ 10.00%,1.00% L Floor, 12/19/2019                          |  |              | 10,500 |      |  |            | 10,292 |         
|Pelican Products, Inc., Term Loan*                           |  |              |        |      |  |            |        |         
|L+ 4.25%,1.00% L Floor, 4/10/2020                            |  |              | 1,995  |      |  |            | 1,976  |         
|PCCR USA, Inc., Term Loan A*                                 |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 12/1/2019                            |  |              | 6,825  |      |  |            | 6,718  |         
|PCCR USA, Inc., Term Loan B*                                 |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 12/1/2019                            |  |              | 3,413  |      |  |            | 3,346  |         
|Profusion Industries, LLC, Term Loan*                        |  |              |        |      |  |            |        |         
|L+ 9.00%,0.50% L Floor, 6/19/2020                            |  |              | 10,300 |      |  |            | 10,116 |         
|Total Miscellaneous Manufacturing                            |  |              |        |      |  |            | 73,071 |         



See accompanying notes to consolidated
financial statements.







10




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



December 31, 2015



(in thousands)



|                                                                               |  |              |        |      |  |            |        | % of Net
|------------------------------------------------------------------------------ |  | ------------ | ------ | ---- |  | ---------- | ------ | --------
|Security Description                                                           |  | Par / Shares |        | Cost |  | Fair Value |        | Assets  
|Non-Control/Non-Affiliate Investments (continued)                              |  |              |        |      |  |            |        |         
|Investments - United States (continued)                                        |  |              |        |      |  |            |        |         
|Debt Investments (continued)                                                   |  |              |        |      |  |            |        |         
|Miscellaneous Retail                                                           |  |              |        |      |  |            |        |         
|360 Holdings III Corp., Term Loan*                                             |  |              |        |      |  |            |        |         
|Prime Rate ("P") + 8.00%, 3.50% P, 10/1/2021                                   |  |              | 7,382  |      |  | $          | 7,088  |         
|Confluence Outdoor, LLC, Term Loan*                                            |  |              |        |      |  |            |        |         
|L+ 7.00%,1.00% L Floor, 4/18/2019                                              |  |              | 6,657  |      |  |            | 6,580  |         
|Confluence Outdoor, LLC, Delayed Draw Term Loan                                |  |              |        |      |  |            |        |         
|L+ 7.00%,1.00% L Floor, 4/18/2019                                              |  |              | 999    |      |  |            | 987    |         
|Interior Specialists, Inc., Term Loan*                                         |  |              |        |      |  |            |        |         
|L+ 8.00%,1.00% L Floor, 6/30/2020                                              |  |              | 10,248 |      |  |            | 10,064 |         
|PD Products, LLC, Term Loan*(3)                                                |  |              |        |      |  |            |        |         
|L+ 10.50%,1.50% L Floor, 10/4/2018                                             |  |              | 9,644  |      |  |            | 9,540  |         
|PD Products, LLC, Revolver                                                     |  |              |        |      |  |            |        |         
|L+ 10.50%,1.50% L Floor, 10/4/2018                                             |  |              | 673    |      |  |            | 673    |         
|Total Miscellaneous Retail                                                     |  |              |        |      |  |            | 34,932 |         
|                                                                               |  |              |        |      |  |            |        |         
|Miscellaneous Services                                                         |  |              |        |      |  |            |        |         
|Simmons Research LLC, Term Loan*                                               |  |              |        |      |  |            |        |         
|L+ 10.50%, 0.56% L, 12/11/2020                                                 |  |              | 3,959  |      |  |            | 3,880  |         
|Speed Commerce, Inc., Term Loan*(4)                                            |  |              |        |      |  |            |        |         
|P+ 13.00%,3.50% P, 11/21/2019                                                  |  |              | 13,226 |      |  |            | 13,063 |         
|Sprint Industrial Holdings, LLC, Term Loan (First Lien)*                       |  |              |        |      |  |            |        |         
|L+ 5.75%,1.25% L Floor, 5/14/2019                                              |  |              | 4,824  |      |  |            | 4,802  |         
|YourMembership Holding Company, Term Loan A**                                  |  |              |        |      |  |            |        |         
|L+ 7.00%,1.00% L Floor, 9/12/2019                                              |  |              | 10,056 |      |  |            | 9,992  |         
|Total Miscellaneous Services                                                   |  |              |        |      |  |            | 31,737 |         
|                                                                               |  |              |        |      |  |            |        |         
|Nonferrous Metal/Minerals                                                      |  |              |        |      |  |            |        |         
|NN, Inc., Initial Term Loan*                                                   |  |              |        |      |  |            |        |         
|L+ 4.75%,1.00% L Floor, 10/19/2022                                             |  |              | 1,995  |      |  |            | 1,976  |         
|Total Nonferrous Metal/Minerals                                                |  |              |        |      |  |            | 1,976  |         
|                                                                               |  |              |        |      |  |            |        |         
|Oil & Gas                                                                      |  |              |        |      |  |            |        |         
|Badlands Production Company (fka Gasco) , Term Loan*                           |  |              |        |      |  |            |        |         
|L+ 12.50%,1.00% L Floor, 5/14/2018                                             |  |              | 10,500 |      |  |            | 10,332 |         
|Rooster Energy Ltd., Term Loan*                                                |  |              |        |      |  |            |        |         
|L+ 11.50%,1.50% L Floor, 6/25/2018                                             |  |              | 5,938  |      |  |            | 5,863  |         
|Iracore International Holdings, Inc., Term Loan*                               |  |              |        |      |  |            |        |         
|L+ 9.00%,1.00% L Floor, 7/10/2020                                              |  |              | 8,878  |      |  |            | 8,757  |         
|Total Oil & Gas                                                                |  |              |        |      |  |            | 24,952 |         
|                                                                               |  |              |        |      |  |            |        |         
|Printing & Publishing                                                          |  |              |        |      |  |            |        |         
|Dodge Data & Analytics LLC, Term Loan*                                         |  |              |        |      |  |            |        |         
|L+ 8.75%,1.00% L Floor, 10/31/2019                                             |  |              | 9,286  |      |  |            | 9,143  |         
|Total Printing & Publishing                                                    |  |              |        |      |  |            | 9,143  |         
|                                                                               |  |              |        |      |  |            |        |         
|Retail-Building Materials, Hardware, Garden Supply & Mobile Home Dealers       |  |              |        |      |  |            |        |         
|Builders FirstSource, Inc., Initial Term Loan*                                 |  |              |        |      |  |            |        |         
|L+ 5.00%,1.00% L Floor, 7/31/2022                                              |  |              | 1,995  |      |  |            | 1,986  |         
|Total Retail-Building Materials, Hardware, Garden Supply & Mobile Home Dealers |  |              |        |      |  |            | 1,986  |         



See accompanying notes to consolidated
financial statements.







11




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



December 31, 2015



(in
thousands)



|                                                                               |  |              |        |      |  |            |         | % of Net
|------------------------------------------------------------------------------ |  | ------------ | ------ | ---- |  | ---------- | ------- | --------
|Security Description                                                           |  | Par / Shares |        | Cost |  | Fair Value |         | Assets  
|Non-Control/Non-Affiliate Investments (continued)                              |  |              |        |     
|Investments - United States (continued)                                        |  |              |        |      |  |            |         |         
|Debt Investments (continued)                                                   |  |              |        |      |  |            |         |         
|Specialty Services                                                             |  |              |        |      |  |            |         |         
|Vencore, Inc. (fka The SI Organization, Inc.), Initial Term Loan (First Lien)* |  |              |        |      |  |            |         |         
|L+ 4.75%,1.00% L Floor, 11/23/2019                                             |  |              | 1,995  |      |  | $          | 1,995   |         
|Vistronix, LLC, Term Loan*                                                     |  |              |        |      |  |            |         |         
|L+ 8.50%, 0.50% L Floor, 12/4/2018                                             |  |              | 9,510  |      |  |            | 9,453   |         
|Vistronix, LLC, Revolver                                                       |  |              |        |      |  |            |         |         
|L+ 8.50%, 0.50% L Floor, 12/4/2018                                             |  |              | 560    |      |  |            | 560     |         
|USAGM Holdco, LLC, Initial Term Loan (First Lien)*                             |  |              |        |      |  |            |         |         
|L+ 3.75%,1.00% L Floor, 7/28/2022                                              |  |              | 2,000  |      |  |            | 1,951   |         
|Total Specialty Services                                                       |  |              |        |      |  |            | 13,959  |         
|                                                                               |  |              |        |      |  |            |         |         
|Stone, Clay, Glass, & Concrete Products                                        |  |              |        |      |  |            |         |         
|Stardust Finance Holdings, Inc., Term Loan*                                    |  |              |        |      |  |            |         |         
|L+ 5.50%,1.00% L Floor, 3/13/2022                                              |  |              | 1,995  |      |  |            | 1,973   |         
|Total Stone, Clay, Glass, & Concrete Products                                  |  |              |        |      |  |            | 1,973   |         
|                                                                               |  |              |        |      |  |            |         |         
|Transportation Services                                                        |  |              |        |      |  |            |         |         
|Gruden Acquisition, Inc., Term Loan (First Lien)*                              |  |              |        |      |  |            |         |         
|L+ 4.75%,1.00% L Floor, 8/18/2022                                              |  |              | 2,000  |      |  |            | 1,961   |         
|Fleetgistics Holdings, Inc., Term Loan*                                        |  |              |        |      |  |            |         |         
|L+ 6.13%,2.00% L Floor, 12/31/2018                                             |  |              | 1,002  |      |  |            | 1,002   |         
|MXD Group, Inc. (fka Exel Direct Inc.), Term Loan*(3)                          |  |              |        |      |  |            |         |         
|L+ 3.00% Cash, 10.00% PIK, 1.00% L Floor, 5/31/2018                            |  |              | 14,322 |      |  |            | 14,205  |         
|Raymond Express International, LLC, Term Loan*                                 |  |              |        |      |  |            |         |         
|L+ 7.75%,1.75% L Floor, 2/28/2018                                              |  |              | 1,695  |      |  |            | 1,687   |         
|Total Transportation Services                                                  |  |              |        |      |  |            | 18,855  |         
|                                                                               |  |              |        |      |  |            |         |         
|Total Debt Investments                                                         |  |              |        |      |  | $          | 412,667 |         
|                                                                               |  |              |        |      |  |            |         |         
|Financial Assets                                                               |  |              |        |      |  |            |         |         
|Consumer Finance Services                                                      |  |              |        |      |  |            |         |         
|GLC Trust 2013-2 Consumer Loan Pool(1)(5)                                      |  |              | 18,688 |      |  | $          | 18,688  |         
|Total Consumer Finance Services                                                |  |              |        |      |  |            | 18,688  |         
|                                                                               |  |              |        |      |  |            |         |         
|Total Financial Assets                                                         |  |              |        |      |  | $          | 18,688  |         
|                                                                               |  |              |        |      |  |            |         |         
|Unfunded Commitments                                                           |  |              |        |      |  |            |         |         
|Communications                                                                 |  |              |        |      |  |            |         |         
|HC Cable OpCo, LLC, Revolver(6)                                                |  |              |        |      |  |            |         |         
|0.50%, 7/17/2018                                                               |  |              | 955    |      |  | $          | (8      | )       
|Total Communications                                                           |  |              |        |      |  |            | (8      | )       
|                                                                               |  |              |        |      |  |            |         |         
|Computer Programming, Data Processing, & Other Computer Related Services       |  |              |        |      |  |            |         |         
|Emtec Global Services Holdings, LLC, Revolver(6)                               |  |              |        |      |  |            |         |         
|0.00%, 11/30/2020                                                              |  |              | 327    |      |  |            | (6      | )       
|Emtec Global Services Holdings, LLC, Delayed Draw Term Loan(6)                 |  |              |        |      |  |            |         |         
|0.00%, 11/30/2020                                                              |  |              | 271    |      |  |            | (4      | )       
|Total Computer Programming, Data Processing, & Other Computer Related Services |  |              |        |      |  |            | (10     | )       
|                                                                               |  |              |        |      |  |            |         |         
|Health Services                                                                |  |              |        |      |  |            |         |         
|Aurora Diagnostics, LLC, Delayed Draw Term Loan B(6)                           |  |              |        |      |  |            |         |         
|2.25%, 7/31/2019                                                               |  |              | 2,393  |      |  |            | (20     | )       
|Aurora Diagnostics, LLC, Revolver(6)                                           |  |              |        |      |  |            |         |         
|0.38%, 7/31/2019                                                               |  |              | 1,020  |      |  |            | (8      | )       
|Total Health Services                                                          |  |              |        |      |  |            | (28     | )       
|                                                                               |  |              |        |      |  |            |         |         
|Miscellaneous Retail                                                           |  |              |        |      |  |            |         |         
|PD Products, LLC, Revolver(6)                                                  |  |              |        |      |  |            |         |         
|0.50%, 10/4/2018                                                               |  |              | 968    |      |  |            | (18     | )       
|Total Miscellaneous Retail                                                     |  |              |        |      |  |            | (18     | )       



See accompanying notes to consolidated
financial statements.







12




Garrison Capital Inc. and Subsidiaries



Consolidated Schedule of Investments



December 31, 2015



(in thousands)



|                                                  |  |              |     |      |  |            |         | % of Net
|------------------------------------------------- |  | ------------ | --- | ---- |  | ---------- | ------- | --------
|Security Description                              |  | Par / Shares |     | Cost |  | Fair Value |         | Assets  
|Non-Control/Non-Affiliate Investments (continued) |  |              |     |      |  |            |         |         
|Investments - United States (continued)           |  |              |     |      |  |            |         |         
|Unfunded Commitments (continued)                  |  |              |     |      |  |            |         |         
|Miscellaneous Services                            |  |              |     |      |  |            |         |         
|YourMembership Holding Company, Revolver(6)       |  |              |     |      |  |            |         |         
|L + 0.00%, 9/12/2019                              |  |              | 441 |      |  | $          | (3      | )       
|Total Miscellaneous Services                      |  |              |     |      |  |            | (3      | )       
|                                                  |  |              |     |      |  |            |         |         
|Specialty Services                                |  |              |     |      |  |            |         |         
|Vistronix, LLC, Revolver(6)                       |  |              |     |      |  |            |         |         
|0.50%, 12/4/2018                                  |  |              | 315 |      |  |            | (5      | )       
|Total Specialty Services                          |  |              |     |      |  |            | (5      | )       
|                                                  |  |              |     |      |  |            |         |         
|Transportation Services                           |  |              |     |      |  |            |         |         
|Raymond Express International, LLC, Revolver      |  |              |     |      |  |            |         |         
|0.50%, 2/28/2018                                  |  |              | 215 |      |  |            | (1      | )       
|Total Transportation Services                     |  |              |     |      |  |            | (1      | )       
|                                                  |  |              |     |      |  |            |         |         
|Total Unfunded Commitments                        |  |              |     |      |  | $          | (73     | )       
|                                                  |  |              |     |      |  |            |         |         
|Total Non-Control/Non-Affiliate Investments       |  |              |     |      |  | $          | 437,053 |         

_____________



|*
        ** |  | Denotes that all or a portion of the investment
        is held as collateral by the CLO (see Note 7).
        Denotes that all or a portion of the loan
        is held by Garrison SBIC.
        L = London Interbank Offered Rate.
        P = Prime Rate
|------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(1) |  | Not a qualifying asset under Section 55(a) of the 1940 Act.  Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Net of incentive fee payable to a third party equal to 20% of any distribution after the Company has received its full net capital investment plus a 12% preferred return in GLC Trust 2013-2 and Prosper Marketplace Series B Preferred Stock.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Coupon is payable in cash, and/or payment-in-kind (“PIK”), or a combination thereof.
|--- |  | ------------------------------------------------------------------------------------



|(4) |  | Investment is currently not income producing and placed on non-accrual status.
|--- |  | ------------------------------------------------------------------------------



|(5) |  | GLC Trust 2013-2 includes 2,637 small balance consumer loans with an average par of $7,087, a weighted average rate of 15.6% and a weighted average maturity of May 8, 2018. See Note 4 for additional information. See Exhibit 99.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for detail on underlying loans.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) |  | The negative fair value is the result of the unfunded commitments being valued below par. These amounts may or may not be funded to the borrowing party currently or in the future.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All debt investments were income producing as of December 31,
2015, unless otherwise noted. Common and preferred equity investments are non-income producing unless otherwise noted.



See accompanying
notes to consolidated financial statements.







13




Garrison Capital Inc. and Subsidiaries



Consolidated Statements of Operations
(unaudited)



($
in thousands, except share and per share amounts)





|                                                                                 |  | Three Months Ended |            | Three Months Ended |  | Six Months Ended |            | Six Months Ended
|-------------------------------------------------------------------------------- |  | ------------------ | ---------- | ------------------ |  | ---------------- | ---------- | ----------------
|                                                                                 |  | June 30, 2016      |            | June 30, 2015      |  | June 30, 2016    |            | June 30, 2015   
|Investment income                                                                |  |                    |            |                    |  |                  |            |                 
|Interest income                                                                  |  |                    |            |                    |  |                  |            |                 
|Non-control/non-affiliate investments                                            |  | $                  | 10,974     |                    |  | $                | 12,277     |                 
|Other income                                                                     |  |                    | 163        |                    |  |                  | 875        |                 
|Total investment income                                                          |  |                    | 11,137     |                    |  |                  | 13,152     |                 
|                                                                                 |  |                    |            |                    |  |                  |            |                 
|Expenses                                                                         |  |                    |            |                    |  |                  |            |                 
|Interest expense                                                                 |  |                    | 2,078      |                    |  |                  | 1,816      |                 
|Management fee                                                                   |  |                    | 1,824      |                    |  |                  | 1,983      |                 
|Incentive fee                                                                    |  |                    | -          |                    |  |                  | 1,017      |                 
|Professional fees                                                                |  |                    | 336        |                    |  |                  | 299        |                 
|Directors' fees                                                                  |  |                    | 107        |                    |  |                  | 101        |                 
|Administrator expenses                                                           |  |                    | 445        |                    |  |                  | 272        |                 
|Other expenses                                                                   |  |                    | 547        |                    |  |                  | 531        |                 
|Total expenses                                                                   |  |                    | 5,337      |                    |  |                  | 6,019      |                 
|Net investment income before excise taxes                                        |  |                    | 5,800      |                    |  |                  | 7,133      |                 
|Excise tax (expense)                                                             |  |                    | (50        | )                  |  |                  | 43         |                 
|Net investment income                                                            |  |                    | 5,750      |                    |  |                  | 7,176      |                 
|                                                                                 |  |                    |            |                    |  |                  |            |                 
|Realized and unrealized (loss)/gain on investments                               |  |                    |            |                    |  |                  |            |                 
|Net realized (loss) from investments                                             |  |                    |            |                    |  |                  |            |                 
|Non-control/non-affiliate investments                                            |  |                    | (18,315    | )                  |  |                  | (8,521     | )               
|Net change in unrealized gain from investments                                   |  |                    |            |                    |  |                  |            |                 
|Non-control/non-affiliate investments                                            |  |                    | 8,681      |                    |  |                  | 5,221      |                 
|Net realized and unrealized (loss) on investments                                |  |                    | (9,634     | )                  |  |                  | (3,300     | )               
|                                                                                 |  |                    |            |                    |  |                  |            |                 
|Net (decrease)/increase in net assets resulting from operations                  |  | $                  | (3,884     | )                  |  | $                | 3,876      |                 
|                                                                                 |  |                    |            |                    |  |                  |            |                 
|Net investment income per common share                                           |  | $                  | 0.36       |                    |  | $                | 0.43       |                 
|Net (decrease)/increase in net assets resulting from operations per common share |  | $                  | (0.24      | )                  |  | $                | 0.23       |                 
|Basic weighted average common shares
outstanding                                 |  |                    | 16,173,091 |                    |  |                  | 16,758,779 |                 
|                                                                                 |  |                    |            |                    |  |                  |            |                 
|Dividends and distributions declared per common share(1)                         |  | $                  | 0.35       |                    |  | $                | 0.35       |                 



____________



|(1) |  | Calculated using basic weighted average common shares outstanding.
|--- |  | ------------------------------------------------------------------



See accompanying notes to consolidated
financial statements.







14




Garrison Capital Inc. and Subsidiaries



Consolidated Statements of Changes in
Net Assets (unaudited)



($
in thousands, except share and per share amounts)





|                                                              |  | Six Months Ended |            | Six Months Ended
|------------------------------------------------------------- |  | ---------------- | ---------- | ----------------
|                                                              |  | June 30, 2016    |            | June 30, 2015   
|                                                              |  |                  |            |                 
|(Decrease)/increase in net assets from operations:            |  |                  |            |                 
|Net investment income                                         |  | $                | 11,612     |                 
|Net realized (loss) from investments                          |  |                  | (18,410    | )               
|Net change in unrealized gain on investments                  |  |                  | 219        |                 
|Net (decrease)/increase in net assets from operations         |  |                  | (6,579     | )               
|                                                              |  |                  |            |                 
|Dividends and distributions to stockholders:                  |  |                  |            |                 
|From net investment income                                    |  |                  | (11,340    | )               
|Total dividends and distributions to stockholders(1)          |  |                  | (11,340    | )               
|                                                              |  |                  |            |                 
|Common share transactions                                     |  |                  |            |                 
|Repurchase of common stock (see Note 13)                      |  |                  | (4,604     | )               
|Net (decrease) in net assets from common share transactions   |  |                  | (4,604     | )               
|                                                              |  |                  |            |                 
|Total (decrease) in net assets                                |  |                  | (22,523    | )               
|Net assets at beginning of period                             |  |                  | 230,710    |                 
|Net assets at end of period                                   |  | $                | 208,187    |                 
|Net asset value per common share                              |  | $                | 12.94      |                 
|Common shares outstanding at end of period                    |  |                  | 16,091,392 |                 
|                                                              |  |                  |            |                 
|Underdistributed net investment income included in net assets |  | $                | 9,056      |                 



____________





|(1) | Dividends from net investment income  are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with U.S. GAAP.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







See accompanying notes to consolidated
financial statements.







15




Garrison Capital Inc. and Subsidiaries



Consolidated Statements of Cash Flows
(unaudited)



($
in thousands, except share and per share amounts)





|                                                                                                                                      |  | Six Months Ended |         | Six Months Ended
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ----------------
|                                                                                                                                      |  | June 30, 2016    |         | June 30, 2015   
|Cash flows from operating activities                                                                                                  |  |                  |         |                 
|Net (decrease)/increase in net assets resulting from operations                                                                       |  | $                | (6,579  | )               
|Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by/(used in) operating activities: |  |                  |         |                 
|Net accretion of discounts on investments                                                                                             |  |                  | (724    | )               
|Net realized loss from investments                                                                                                    |  |                  | 18,410  |                 
|Amortization of discount on senior secured notes payable                                                                              |  |                  | 107     |                 
|Amortization of deferred debt issuance costs                                                                                          |  |                  | 409     |                 
|Net change in unrealized (gain) on investments                                                                                        |  |                  | (219    | )               
|Payment-in-kind interest                                                                                                              |  |                  | (929    | )               
|Purchases of investments                                                                                                              |  |                  | (61,829 | )               
|Paydowns of investments                                                                                                               |  |                  | 28,716  |                 
|Sales of investments                                                                                                                  |  |                  | 26,983  |                 
|Changes in operating assets and liabilities:                                                                                          |  |                  |         |                 
|Decrease/(increase) in cash, restricted                                                                                               |  |                  | 4,580   |                 
|(Increase) in due from counterparties                                                                                                 |  |                  | (719    | )               
|Decrease/(increase) in accrued interest receivable                                                                                    |  |                  | 1,701   |                 
|(Increase) in deferred offering costs                                                                                                 |  |                  | -       |                 
|Decrease in prepaid administrator fee                                                                                                 |  |                  | -       |                 
|Decrease/(increase) in other assets                                                                                                   |  |                  | 214     |                 
|Increase in due to counterparties                                                                                                     |  |                  | 1,721   |                 
|Increase in payables to affiliates                                                                                                    |  |                  | 210     |                 
|Increase/(decrease) in interest payable on notes payable                                                                              |  |                  | 147     |                 
|(Decrease) in accrued expenses and other payables                                                                                     |  |                  | (105    | )               
|Net cash provided by operating activities                                                                                             |  |                  | 12,094  |                 
|                                                                                                                                      |  |                  |         |                 
|Cash flows from financing activities                                                                                                  |  |                  |         |                 
|Repurchase of common stock                                                                                                            |  |                  | (4,604  | )               
|Distributions paid to stockholders                                                                                                    |  |                  | (11,340 | )               
|Payments for financing costs                                                                                                          |  |                  | (178    | )               
|(Repayment) of senior secured revolving notes                                                                                         |  |                  | (3,900  | )               
|Repayment of GLC Trust 2013-2 Class A notes                                                                                           |  |                  | (6,274  | )               
|Proceeds from Garrison SBIC borrowings                                                                                                |  |                  | 7,360   |                 
|Net cash (used in) financing activities                                                                                               |  |                  | (18,936 | )               
|                                                                                                                                      |  |                  |         |                 
|Net (decrease)/increase in cash                                                                                                       |  |                  | (6,842  | )               
|Cash at beginning of period                                                                                                           |  |                  | 24,985  |                 
|Cash at end of period                                                                                                                 |  | $                | 18,143  |                 
|                                                                                                                                      |  |                  |         |                 
|Supplemental disclosure of cash flow information                                                                                      |  |                  |         |                 
|Cash paid for interest expense                                                                                                        |  | $                | 3,348   |                 
|Supplemental disclosure of non-cash activities                                                                                        |  |                  |         |                 
|Restructuring of portfolio investment                                                                                                 |  | $                | 840     |                 







See accompanying notes to consolidated
financial statements.







16




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



1. Organization



Garrison Capital Inc. (“GARS”
and, collectively with its subsidiaries, the “Company”, “we” or “our”) is a Delaware corporation
and is an externally managed, closed-end, non-diversified management investment company that has filed an election to be treated
as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”).
In addition, for tax purposes, GARS 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”), for the period beginning October 9, 2012 and intends
to qualify annually thereafter.



GARS priced its initial public offering (“IPO”)
on March 26, 2013, which closed on April 2, 2013, selling 6,133,334 shares, including 800,000 shares issued pursuant to the underwriters’
exercise of the over-allotment option, at a public offering price of $15.00 per share. Concurrent with the closing of the IPO,
the Company’s directors, officers, employees and an affiliate of Garrison Capital Advisers LLC, a Delaware limited liability
company (the “Investment Adviser”), purchased an additional 126,901 shares through a private placement transaction
(the “Concurrent Private Placement”) exempt from registration under the Securities Act of 1933, as amended (the "Securities
Act"), at a price of $15.00 per share. GARS’ shares trade on the NASDAQ Global Select Market, or NASDAQ, under the symbol
“GARS”.



Our investment objective is to generate current
income and capital appreciation by making investments generally in the range of $5.0 million to $25.0 million primarily in
debt securities and loans of U.S. based middle-market companies, which we define as those having annual earnings before interest,
taxes, depreciation and amortization (“EBITDA”) of between $5.0 million and $30.0 million. Our goal is to generate
attractive risk-adjusted returns by assembling a broad portfolio of investments.



We invest or provide direct lending primarily
in (1) first lien senior secured loans, (2) second lien senior secured loans, (3) “one-stop” senior secured or “unitranche”
loans, (4) subordinated or mezzanine loans, (5) unsecured consumer loans and (6) to a lesser extent, selected equity co-investments
in middle-market companies. We use the term “one-stop” or “unitranche” to refer to a loan that combines
characteristics of traditional first lien senior secured loans and second lien or subordinated loans. We use the term “mezzanine”
to refer to a loan that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of
such borrower’s other indebtedness.



The Company’s business and affairs
are managed and controlled by the Company’s board of directors (the “Board”), of which a majority of the members
are independent of the Company and the Investment Adviser and its affiliates.







17




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



1. Organization  – (continued)



On May 17, 2013, GARS formed GLC Trust 2013-2,
a Delaware statutory trust (“GLC Trust 2013-2”). This entity is a wholly owned subsidiary of GARS created for the
purpose of investing in a portfolio of small balance consumer loans. GLC Trust 2013-2 is 100% owned by GARS. GLC Trust 2013-2
closed on a $10.0 million revolving facility with Capital One Bank, N.A. on December 6, 2013 (“GLC Trust 2013-2 Revolver”).
The GLC Trust 2013-2 Revolver included an accordion feature, such that GLC Trust 2013-2 was permitted to increase the total commitment
up to $15.0 million under the terms of the loan agreement. GARS exercised this option on December 20, 2013.



On July 11, 2014, GARS increased the
GLC Trust 2013-2 Revolver total commitment by $15.0 million, for a total commitment of $30.0 million. On July 18, 2014, GARS
completed a $39.2 million term debt securitization (the “GLC Trust 2013-2 Securitization” and the notes offered
thereby, the “GLC Trust 2013-2 Notes”) collateralized by the GLC Trust 2013-2 consumer loan portfolio,
to refinance the GLC Trust 2013-2 Revolver (see Note 7).



On September 25, 2013, Garrison Funding 2013-2 Ltd. (“GF 2013-2”) completed a $350.0 million
collateralized loan obligation (the “CLO”) through a private placement, the proceeds of which were utilized, along
with cash on hand, to refinance the existing Credit Facility (see Note 7). Immediately following the completion of the CLO, Garrison
Funding 2013-2 Manager LLC (“GF 2013-2 Manager”) owned 100% of the Subordinated Notes (as defined below). GF 2013-2
Manager serves as collateral manager to GF 2013-2 and has entered into a sub-collateral management agreement with the Investment
Adviser.



On August 15, 2013, Walnut Hill II LLC was
formed for the purpose of holding a first lien equipment loan. Walnut Hill II LLC is 100% owned by GARS.



On May 29, 2014, Garrison Capital SBIC LP
(“Garrison SBIC”), which has an investment objective substantially similar to GARS, was formed in accordance with small
business investment company (“SBIC”) regulations to acquire up to $150.0 million in financing. Garrison SBIC received
a license from the U.S Small Business Administration (the “SBA”) on May 26, 2015. Garrison SBIC is 100% owned
by GARS.



On July 7, 2014, Forest Park II LLC was formed
for the purpose of holding first lien equipment loans. Forest Park II LLC is 100% owned by GARS.



GARS will periodically form limited liability
companies for the purpose of holding minority equity investments (the “GARS Equity Holdings Entities”). GARS intends
to form a new GARS Equity Holding Entity for each minority equity investment in order to provide specific tax treatment for individual
investments. The GARS Equity Holdings Entities are 100% owned by GARS.



American Stock Transfer & Trust Company,
LLC (“AST”) serves as the transfer and dividend paying agent and registrar to GARS.







18




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



1. Organization  – (continued)



GARS entered into a custody agreement, which
was effective as of October 9, 2012 (the “Custody Agreement”), with Deutsche Bank Trust Company Americas (the “Custodian”)
to act as custodian for GARS. The Custodian is also the trustee of GF 2013-2 and the custodian for Garrison SBIC.



GARS entered into an administration agreement,
which was effective as of October 9, 2012 (the “Administration Agreement”), with Garrison Capital Administrator LLC,
a Delaware limited liability company (the “GARS Administrator”).



GARS entered into an investment advisory
agreement with the Investment Adviser, which was effective as of October 9, 2012 and subsequently amended and restated on May 6,
2014 (the “Investment Advisory Agreement”). A new Investment Advisory Agreement was approved by the Company’s
stockholders on May 1, 2015.



The Investment Adviser is responsible for
sourcing potential investments, conducting research and diligence on prospective investments and equity sponsors, analyzing investment
opportunities, structuring our investments and monitoring our investments and portfolio companies on an ongoing basis subject to
the supervision of the Board. The Investment Adviser was organized in November 2010 and is a registered investment adviser under
the Investment Advisers Act of 1940, as amended. The Investment Adviser is an affiliate of Garrison Investment Group LP (the “Investment
Manager”), which is also the investment manager of various stockholders of the Company.



GLC Trust 2013-2 has entered into agreements
with Prosper Funding LLC, GARS Administrator, U.S. Bank National Association, Wilmington Trust, National Association and Manufacturers
and Traders Trust Company to act as servicer, securities administrator, indenture trustee and custodian, respectively, for GLC
Trust 2013-2.



2. Significant Accounting Policies and Recent Updates



Basis of Presentation



The Company is an investment company as defined
in the accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 946 — Financial Services —  Investment Companies (“ASC
Topic 946”).



The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.
GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6
or 10 of Regulation S-X. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications consisting solely
of normal accruals that are necessary for the fair presentation of financial results as of and for the periods presented. Certain
prior period amounts have been reclassified to conform to the current period presentation including the retrospective reclassification
of deferred debt issuance costs to be presented as a liability, netted against the carrying amount of the corresponding debt liability.
The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any
other interim period or for the entire year. The accompanying unaudited consolidated interim financial statements should be read
in conjunction with the audited consolidated financial statements and the related management’s discussion and analysis of
financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended December 31,
2015, filed with the Securities and Exchange Commission (the “SEC”).



Basis for Consolidation



The consolidated financial statements include
the accounts of GARS and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
The accounts of the subsidiaries are prepared for the same reporting period as GARS using consistent accounting policies. Under
the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants Audit and Accounting
Guide for Investment Companies, codified in ASC Topic 946, the Company is precluded from consolidating any entity other than another
investment company.



The Company generally consolidates any investment
company when it owns 100% of its partners’ or members’ capital or equity units. ASC Topic 946 provides for the consolidation
of a controlled operating company that provides substantially all of its services to the investment company or its consolidated
subsidiaries.



GF 2013-2 Manager owns a 100% interest in
GF 2013-2, which is an investment company for accounting purposes, and also provides collateral management services solely to GF
2013-2. As such, GARS has consolidated the accounts of these entities into these consolidated financial statements. As a result
of this consolidation, the amounts outstanding under the CLO are treated as the Company’s indebtedness.







19




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



2. Significant Accounting Policies and Recent Updates  – (continued)



The GARS Equity Holdings Entities, Walnut
Hill II LLC, Forest Park II LLC, Garrison SBIC and GLC Trust 2013-2 are 100% owned investment companies for accounting purposes.
As such, GARS has consolidated the accounts of these entities into these consolidated financial statements. As a result of this
consolidation, indebtedness of Garrison SBIC and the amounts outstanding under the GLC Trust 2013-2 Notes are treated as the Company’s
indebtedness.



Investment Classification



As required by the 1940 Act, investments
are classified by level of control. “Control Investments” are investments in those companies that the Company is deemed
to control as defined in the 1940 Act. “Affiliate Investments” are investments in those companies that are affiliated
companies, as defined in the 1940 Act, other than Control Investments. “Non-Control/Non-Affiliate Investments” are
those that are neither Control Investments nor Affiliate Investments.



Generally, under the 1940 Act, the Company
is deemed to control a company in which it has invested if it owns more than 25% of the voting securities of such company. The
Company is deemed to be an affiliate of a company in which it has invested if it owns 5% or more of the voting securities of such
company.



As of June 30, 2016, $400.9 million of the Company’s investments were Non-Control/Non-Affiliate Investments
and $3.7 million were Non-Control/Affiliate Investments. As of December 31, 2015, all of the Company’s investments were Non-Control/Non-Affiliate
Investments.



Use of Estimates



The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures
in the consolidated financial statements, including the estimated fair values of investments and the amount of income and expenses
during the reporting period. Actual results could differ from those estimates.



Cash and Cash Equivalents



As of June 30, 2016 and December 31, 2015,
cash held in designated bank accounts with the Custodian was $11.8 million and $23.4 million, respectively. As of June 30, 2016
and December 31, 2015, cash held in designated bank accounts with other major financial institutions was $6.3 million and $1.6
million, respectively. At times, these balances may exceed federally insured limits and this potentially subjects the Company to
a concentration of credit risk. The Company believes it is not exposed to any significant credit risk associated with its cash
custodian.



The Company defines cash equivalents as highly
liquid financial instruments with original maturities of three months or less, including those held in overnight sweep bank deposit
accounts. As of June 30, 2016 and December 31, 2015, the Company held no cash equivalents.



Cash and Cash Equivalents, Restricted



Restricted cash as of June 30, 2016
and December 31, 2015 included cash of $6.2 million and $10.4 million, respectively, held by GF 2013-2 in designated bank accounts
with the Custodian. GF 2013-2 is required to use a portion of these amounts to pay interest expense, reduce borrowings at the end
of the investment period and to pay other amounts in accordance with the terms of the indenture of the CLO. Funds held by GF 2013-2
are not available for general use by the Company.



Restricted cash as of June 30, 2016
and December 31, 2015 also included cash of $1.1 million and $1.4 million, respectively, held by GLC Trust 2013-2 in
designated restricted bank accounts. GLC Trust 2013-2 is required to use a portion of these amounts to make principal
payments and pay interest expense in accordance with the terms of the indenture governing the GLC Trust 2013-2 Notes.



As of both June 30, 2016 and December 31,
2015, the Company held no restricted cash equivalents.







20




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





2. Significant Accounting Policies and Recent Updates  – (continued)



Investment Transactions and Related Investment Income and
Expense



The Company records its investment transactions
on a trade date basis, which is the date when management has determined that all material legal terms have been contractually defined
for the transactions. These transactions could possibly settle on a subsequent date depending on the transaction type. All related
revenue and expenses attributable to these transactions are reflected on the consolidated statements of operations commencing on
the trade date unless otherwise specified by the transaction documents. Realized gains and losses on investment transactions are
recorded using the specific identification method.



The Company accrues interest income if it
expects that ultimately it will be able to collect such income. Generally, when a payment default occurs on a loan in the portfolio,
or if management otherwise believes that the issuer of the loan will not be able to make contractual interest payments or principal
payments, the Investment Adviser will place the loan on non-accrual status and will cease recognizing interest income on that loan
until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed
to be collectible. However, the Company remains contractually entitled to this interest.



The Company may make exceptions to this policy
if the loan has sufficient collateral value and is in the process of collection. Accrued interest is written off when it becomes
probable that the interest will not be collected and the amount of uncollectible interest can be reasonably estimated. For consumer
loans, any loan which is 120 days past due is considered defaulted and 100% of the principal is charged off with no expected recovery
or sale of defaulted receivables. For the three and six months ended June 30, 2016, the Company recognized $0.3 million and $0.7
million in charge offs in realized losses from investments for consumer loans held by GLC Trust 2013-2, respectively. The Company
had three investments that were on non-accrual status as of June 30, 2016 and four investments that were on non-accrual
status as of December 31, 2015.



Any original issue discounts, as well as
any other purchase discounts or premiums on debt investments, are accreted or amortized and included in interest income over the
maturity periods of the investments. If a loan is placed on non-accrual status, the Company will cease recognizing amortization
of original issue discount and purchase discount until all principal and interest is current through payment or until a restructuring
occurs, such that the income is deemed to be collectible.



Dividend income on preferred equity securities
is recorded as investment income on an accrual basis to the extent that such amounts are payable by the portfolio company and are
expected to be collected.



Interest Expense



Interest expense is recorded on an accrual
basis and is adjusted for amortization of deferred debt issuance costs and any original issue discount.



Expenses



Expenses related to, but not limited to,
ratings fees, due diligence, valuation expenses and independent collateral appraisals may arise when the Company makes certain
investments. These expenses are recognized as incurred in the consolidated statements of operations within other expenses.







21




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





2. Significant Accounting Policies and Recent Updates  – (continued)



Loan Origination, Facility, Commitment and Amendment Fees



The Company may receive loan origination,
prepayment, facility, commitment, forbearance and amendment fees in addition to interest income during the life of the investment.
The Company may receive origination fees upon the origination of an investment.



Origination fees received by the Company
are initially deferred and reduced from the cost basis of the investment and subsequently accreted into interest income over the
remaining stated term of the loan.



Upon the prepayment of a loan or debt security,
any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and debt securities
as interest income when we receive such amounts. Facility fees, sometimes referred to as asset management fees, are accrued as
a percentage periodic fee on the base amount (either the funded facility amount or the committed principal amount). Commitment
fees are based upon the undrawn portion committed by the Company and are accrued over the life of the loan.



Amendment and forbearance fees are paid in
connection with loan amendments and waivers and are recognized upon completion of the amendments or waivers, generally when such
fees are receivable. Any such fees are recorded and classified as other income and included in investment income on the consolidated
statements of operations. As these fees are paid and recognized in connection with specific loan amendments or forbearance, they
are typically non-recurring in nature.



Valuation of Investments



The Company values its investments in accordance
with FASB ASC Topic 820, Fair Value Measurements and Disclosures (formerly FASB Statement No. 157, “ASC 820”).
ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities
measured at fair value.



ASC 820’s definition of fair value
focuses on exit price in the principal, or most advantageous, market and prioritizes the use of market-based inputs over entity-specific
inputs within a measurement of fair value.



The Company’s portfolio consists of
primarily debt investments and unsecured consumer loans. The fair value of the Company’s investments is initially determined
by investment professionals of the Investment Adviser and ultimately determined by the Board on a quarterly basis. In valuing the
Company’s debt investments, the Investment Adviser generally uses various approaches, including proprietary models that consider
the analyses of independent valuation agents as well as credit risk, liquidity, market credit spreads, other applicable factors
for similar transactions, bid quotations obtained from other financial institutions that trade in similar investments or based
on bid prices provided by independent third party pricing services.



The types of factors that the Board may take
into account when reviewing the fair value initially derived by the Investment Adviser and determining the fair value of the Company’s
debt investments generally include, as appropriate, comparison to publicly traded securities, including such factors as yield,
maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral,
the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio
company does business and other relevant factors.



In valuing the Company’s unsecured
consumer loans, the Investment Adviser generally uses a discounted cash flow methodology based upon a set of assumptions. The primary
assumptions used to value the unsecured consumer loans include prepayment and default rates derived from historical performance,
actual performance as compared to historical projections and discount rate.



The types of factors that the Board may take
into account when reviewing the fair value initially derived by the Investment Adviser and determining the fair value of the Company’s
consumer loan investments generally include, as appropriate, prepayment and default rates derived from historical performance,
actual performance as compared to historical projections and discount rates.



The Board has retained several independent
valuation firms to review the valuation of each portfolio investment that does not have a readily available market quotation at
least once during each 12-month period. To the extent a security is reviewed in a particular quarter, it is reviewed and valued
by only one service provider.



However, the Board does not intend to have
de minimis investments of less than 0.5% of the Company’s total assets (up to an aggregate of 10.0% of the Company’s
total assets) independently reviewed.



The Board is responsible for determining
the fair value of the Company’s assets in good faith using a documented valuation policy and consistently applied valuation
process.







22




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





2. Significant Accounting Policies and Recent Updates  – (continued)



Due to the nature of the Company’s
strategy, the Company’s portfolio is primarily comprised of relatively illiquid investments that are privately held. Inputs
into the determination of fair value of the Company’s portfolio investments require significant management judgment or estimation.
This means that the Company’s portfolio valuations are based on unobservable inputs and the Investment Adviser’s own
assumptions about how market participants would price the asset or liability in question. Valuations of privately held investments
are inherently uncertain and they may fluctuate over short periods of time and may be based on estimates. The determination of
fair value by the Board may differ materially from the values that would have been used if a ready market for these investments
existed.



The valuation process is conducted at the
end of each fiscal quarter, with a portion of the Company’s valuations of portfolio companies without market quotations subject
to review by the independent valuation firms each quarter. When an external event with respect to one of the Company’s portfolio
companies, such as a purchase transaction, public offering or subsequent equity sale occurs, we expect to use the pricing indicated
by the external event to corroborate our valuation.



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



| | • | The Company’s valuation process begins with each portfolio company or investment being initially valued by investment professionals of the Investment Adviser responsible for credit monitoring.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Preliminary valuation conclusions are then documented and discussed with our senior management and the Investment Adviser.
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | The valuation committee of the Board reviews these preliminary valuations.
| | - | --------------------------------------------------------------------------



| | • | At least once annually, the valuation for each portfolio investment that does not have a readily available quotation is reviewed by an independent valuation firm, subject to the de minimis exception described above.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The Board discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith.
| | - | -------------------------------------------------------------------------------------------------------------------------



Net assets could be materially affected if
the determinations regarding the fair value of the investments were materially higher or lower than the values that are ultimately
realized upon the disposal of such investments.



Deferred Financing Costs



Financing costs incurred in connection with
the execution of the CLO, SBIC borrowings and GLC Trust Securitization are included as a
reduction in the net book value of the related liability on our consolidated statement of financial condition. These costs are
amortized as interest expense over the life of the related obligations.



Offering Costs



Deferred offering costs consist of fees paid
in relation to legal, accounting, regulatory and printing work completed in preparation of equity or debt offerings and are charged
against proceeds from the offerings when received. As of both June 30, 2016 and December 31, 2015, $0.5 million of expenses associated
with the shelf registration statement initially filed with the SEC on April 3, 2014 (“Registration Statement”) were
deferred and included in deferred offering costs. These amounts will be charged against proceeds from future offerings of securities
when received.



Share Repurchase



Share repurchase transactions are recorded
on a trade date basis, which is the date when management has determined that all material legal terms have been contractually defined
for the transactions. The aggregate cost of common stock repurchased, including any direct transaction costs, is recorded as a
reduction of the par and paid-in-capital in excess of par value accounts, respectively.



Dividends and Distributions



Dividends and distributions to common stockholders
are recorded on the ex-dividend date. The amount to be paid out as a dividend or distribution is determined by the Board each quarter
and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least
annually, although the Company may decide to retain such capital gains for investment.







23




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



2. Significant Accounting Policies and Recent Updates  – (continued)



The Company adopted a dividend reinvestment
plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder
elects to receive cash as provided below. As a result, if the Board declares a cash dividend or other distribution, then our stockholders
who have not ‘opted out’ of our dividend reinvestment plan will have their cash distribution automatically reinvested
in additional shares of our common stock, which may be newly issued shares or shares acquired by AST through open-market purchases,
rather than receiving the cash distribution. As of June 30, 2016, no new shares have been issued under the dividend reinvestment
plan.



No action is required on the part of a registered
stockholder to have its cash dividend or other distribution reinvested in shares of our common stock. A registered stockholder
may elect to receive an entire distribution in cash by notifying AST in writing so that such notice is received by AST no later
than the record date for distributions to stockholders.



Those stockholders whose shares are held
by a broker or other financial intermediary may receive dividends and other distributions in cash by notifying their broker or
other financial intermediary of their election.



Income Taxes



As discussed in Note 1, for tax
purposes, GARS has elected to be treated as a RIC under Subchapter M of the Code and intends to qualify each taxable year for
such treatment. In addition, GF 2013-2, GF 2013-2 Manager, the GARS Equity Holdings Entities, Walnut Hill II LLC and Forest
Park II LLC are disregarded entities for tax purposes. GLC Trust 2013-2 is a grantor trust for U.S. taxable income purposes,
whereby the income reverts to GARS, accordingly, no provision for federal income tax was made in the consolidated financial
statements for the three and six months ended June 30, 2016 or the year ended December 31, 2015.



Each taxable year, GARS intends to comply
with all RIC qualification provisions contained in the Code including certain source-of-income and asset diversification requirements,
as well as distribution requirements to our stockholders equal to at least 90% of “investment company taxable income”.
“Investment company taxable income” is generally defined as net ordinary income plus the excess of realized net short-term
capital gains over realized net long-term capital losses. As a RIC, GARS generally does not have to pay corporate-level U.S. federal
income taxes on any net ordinary income or capital gains that it distributes to its stockholders in a timely manner.







24




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



2. Significant Accounting Policies and Recent Updates  – (continued)



However, GARS is subject to U.S. federal
income taxes at regular corporate tax rates on any net ordinary income or net capital gain not distributed to its stockholders
assuming at least 90% of its investment company taxable income is distributed timely.



Depending on the level of taxable income
earned in a tax year, the Company may choose to retain taxable income in excess of current year dividend distributions, and distribute
such taxable income in the next tax year. The Company would then pay a 4% excise tax on such taxable income, as required. To the
extent that the Company determines that its estimated current year annual taxable income, determined on a calendar basis, could
exceed estimated current calendar year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable
income as taxable income is earned.







For the three and six months ended June 30, 2016, there was $50,000
and $0.1 million of U.S. federal excise tax expense recorded. For the three ended June 30, 2015, the Company reversed previously
accrued U.S. federal excise tax in the amount of $(42,957). In addition, GARS has certain wholly owned taxable subsidiaries (the
“Taxable Subsidiaries”), each of which holds a portion of one or more of our portfolio investments that are listed
on the consolidated schedule of investments. The Taxable Subsidiaries are consolidated for financial reporting purposes in accordance
with U.S. GAAP, so that our consolidated financial statements reflect our investments in the portfolio companies owned by the Taxable
Subsidiaries. The purpose of the Taxable Subsidiaries is, among other things, to permit GARS to hold certain interests in portfolio
companies that are organized as limited liability companies (“LLCs”) (or other forms of pass-through entities) and
still satisfy the RIC tax requirement that at least 90% of the RIC’s gross income for federal income tax purposes must consist
of qualifying investment income. Absent the Taxable Subsidiaries, a proportionate amount of any gross income of an LLC (or other
pass-through entity) portfolio investment would flow through directly to the RIC. To the extent that such income did not consist
of investment income, it could jeopardize GARS ability to qualify as a RIC and therefore cause GARS to incur significant amounts
of corporate-level U.S. federal income taxes. Where interests in LLCs (or other pass-through entities) are owned by the Taxable
Subsidiaries, however, the income from such interests is taxed to the Taxable Subsidiaries and does not flow through to the RIC,
thereby helping GARS preserve its RIC status and resultant tax advantages. The Taxable Subsidiaries are not consolidated for U.S.
federal income tax purposes and may generate income tax expense as a result of their ownership of the portfolio companies.





Dividends from net investment income and
distributions from net realized capital gains are determined in accordance with U.S. federal tax regulations, which may differ
from amounts determined in accordance with U.S. GAAP and those differences could be material. These book-to-tax differences are
either temporary or permanent in nature. Reclassifications due to permanent differences have no impact on net assets. The below
were reclassifications made due to permanent differences for the tax year ended December 31, 2015:



|($ in thousands)                               |  | December 31, 2015
|---------------------------------------------- |  | -----------------
|Accumulated net investment income              |  | $                
|Accumulated net realized (loss) on investments |  |                  
|Paid - in capital                              |  |                  



The permanent book-to-tax differences arose
primarily due to the tax classification of dividend distributions, tax basis differences on realized investments, tax characterization
of certain realized losses and the accrual of nondeductible U.S. federal excise tax.



Taxable income differs from the net increase
(decrease) in net assets resulting from operations primarily due to the exclusion of unrealized gain (loss) on investments from
taxable income until they are realized, book-to-tax temporary differences related to the deductibility of accrued Incentive Fees
payable to the Investment Adviser attributable to unrealized gain (loss) on investments, book-to-tax temporary differences on taxable
income inclusions of investment income earned on certain securities that was accrued for tax but not for U.S. GAAP, and book-to-tax
temporary differences related to net capital loss carryforwards and utilization of net capital gain loss carryforwards from prior
years.





25




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



2. Significant Accounting Policies and Recent Updates  – (continued)



The following table reconciles net increase
in net assets resulting from operations to taxable income for tax year ended December 31, 2015:



|($ in thousands)                                       |  | December 31, 2015
|------------------------------------------------------ |  | -----------------
|Net (decrease) in net assets resulting from operations |  | $                
|Net change in unrealized loss from investments         |  |                  
|Net capital loss carryforward                          |  |                  
|Permanent book-to-tax differences                      |  |                  
|Temporary book-to-tax differences                      |  |                  
|Taxable income before deductions for distribution      |  | $                



As of December 31, 2015, the accumulated
earnings/(deficit) on a tax basis was:



|($ in thousands)                                  |  | December 31, 2015
|------------------------------------------------- |  | -----------------
|Undistributed ordinary income                     |  | $                
|Accumulated capital gain and other gains/(losses) |  |                  
|Unrealized (losses) on investments                |  |                  
|Total accumulated (deficit)                       |  | $                



The tax character of all distributions paid
for the year ended December 31, 2015 was classified as ordinary income.



As of December 31, 2015 the components of
the $(22.1) million of accumulated losses were the same on a tax basis and under U.S. GAAP.



As of December 31, 2015, the federal income
tax basis of investments was $437.1 million resulting in net unrealized loss of $(22.1) million.



Under U.S. GAAP the Company is required
to determine whether a tax position of the Company is more likely-than-not to be sustained upon examination by the
applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical
merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than
fifty percent likely of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could
result in the Company recording a tax liability that could negatively impact the Company’s net assets.





The Company has concluded that it was not
necessary to record a liability for any such tax positions as of June 30, 2016 and December 31, 2015. However, the Company’s
conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including ongoing analyses
of, and changes to, tax laws, regulations and interpretations thereof.







26




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



2. Significant Accounting Policies and Recent Updates  – (continued)



The Company’s activities from commencement
of operations remain subject to examination by U.S. federal, state, and local tax authorities. No interest expense or penalties
have been assessed as of June 30, 2016 and December 31, 2015.



If the Company were required to recognize
interest and penalties, if any, related to unrecognized tax benefits this would be recognized as income tax expense in the consolidated
statement of operations.



As of December 31, 2015, the Company had
net long term capital loss carryforwards of $10.3 million.



Recent Accounting Pronouncements



In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Topic 825): Recognition and
Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 changes how entities account for and measure the fair
value of certain equity investments and updates the presentation and disclosure of certain financial assets and liabilities. This
new guidance is effective for annual and interim periods beginning on or after December 15, 2017 and for interim periods within
those fiscal years, with early adoption permitted. The Company is currently evaluating the impact ASU 2016-01 will have on
the Company’s consolidated financial position and disclosures.



3. Investments



The Company’s investments include debt
investments (both funded and unfunded, “Debt Investments”), preferred and minority equity investments (“Equity”)
of diversified companies and a portfolio of unsecured small balance consumer loans (“Financial Assets”). These financial
instruments may be purchased indirectly through an interest in a limited partnership or a limited liability company.







27




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



3. Investments  – (continued)



Certain of the risks of investing in the
financial instruments of a borrower or a company experiencing various forms of financial, operational, legal, and/or other distress
or impairment, including companies involved in bankruptcy or other reorganization or liquidation proceedings, and those which might
become involved in such proceedings, are discussed herein. Through investing in these assets, the Company is exposed to credit
risk relating to whether the borrower will meet its obligation to pay when it comes due until the investments are sold or mature.
Any investment in a distressed company may involve special risks.



The Company’s transactions in Debt
Investments are normally secured financings that are collateralized by physical assets and/or the enterprise value of the borrower.
This collateral, and the Company’s rights to this collateral, are different depending on the specific transaction and are
defined by the legal documents agreed to in the transaction.



The terms of the Debt Investments may provide
for the Company to extend to a borrower additional credit or provide funding for any unfunded portion of such Debt Investments
at the request of the borrower. This exposes the Company to potential liabilities that are not reflected on the consolidated statements
of financial condition. As of June 30, 2016 and December 31, 2015, the Company had $8.7 million and $6.9 million of unfunded commitments
with a fair value of $(0.1) million and $(0.1) million, respectively. The negative fair value is the result of the unfunded commitments
being valued below par. These amounts may or may not be funded to the borrowing party now or in the future.





There is no central clearinghouse for the
Company’s Debt Investments, Equity or Financial Assets, nor is there a central depository for custody of any such interests.
The processes by which these interests are cleared, settled and held in custody are individually negotiated between the parties
to the transaction. This subjects the Company to operational risk to the extent that there are delays and failures in these processes.
The Custodian maintains records of the investments owned by the Company.



4. Fair Value of Financial Instruments



The fair value of the Company’s assets
and liabilities which qualify as financial instruments approximate the carrying amounts presented in the consolidated statements
of financial condition.



U.S. GAAP requires enhanced disclosures about
investments that are measured and reported on a fair value basis. Under U.S. GAAP, fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.



Further, the guidance distinguishes between
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 reporting entity (observable inputs) and inputs that reflect the reporting entity’s
own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best
information available in the circumstances (unobservable inputs). Various inputs are used in determining the values of the Company’s
investments and these inputs are categorized as of each valuation date.



The inputs are summarized in three broad
levels listed below:



| | • | Level 1 — quoted unadjusted prices in active markets for identical investments as of the reporting date.
| | - | --------------------------------------------------------------------------------------------------------



| | • | Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc.).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Level 3 — significant unobservable inputs (including the reporting entity’s own assumptions about the assumptions market participants would use in determining the fair values of investments or indicative bid prices from unaffiliated market makers or independent third party pricing services).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







28




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



4. Fair Value of Financial Instruments  – (continued)



Fair value of publicly traded instruments
is generally based on quoted market prices. Fair value of non-publicly traded instruments, and of publicly traded instruments for
which quoted market prices are not readily available, may be determined based on other relevant factors, including bid quotations
from unaffiliated market makers or independent third-party pricing services, the price activity of comparable instruments and valuation
pricing models.



For those investments valued using quotations,
the bid price is generally used, unless the Company determines that it is not representative of an exit price. To the extent observable
market data is available, such information may be the result of consensus pricing information or broker quotes. Due to the fact
that the significant inputs used by the contributors of the consensus pricing source or the broker are unobservable and evidence
with respect to trading levels is not available, any investments valued using indicative bid prices from unaffiliated market makers
and independent third-party pricing services have been classified within Level 3.



Investments classified as Level 3 may be
fair valued using the income and market approaches, using a market yield valuation methodology or enterprise value methodology.



Factors that could affect fair value measurements
of debt investments using the above referenced approaches include assumed growth rates, capitalization rates, discount rates, loan-to-value
ratios, liquidation value, relative capital structure priority, market comparables, compliance with applicable loan, covenant and
interest coverage performance, book value, market derived multiples, reserve valuation, assessment of credit ratings of an underlying
borrower, review of ongoing performance, review of financial projections as compared to actual performance, review of interest
rate and yield risk.



Factors that could affect fair value measurements
of consumer loans using the above referenced approaches include prepayment rates, default rates, review of financial projections
as compared to actual performance and discount rates.



Such factors may be given different weighting
depending on management’s assessment of the underlying investment, and management may analyze apparently comparable investments
in different ways. The Company has used, and intends to continue to use, independent valuation firms to provide additional corroboration
for estimating the fair values of investments. Valuations performed by the independent valuation firms may utilize proprietary
models and inputs. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated
with investing in those securities.



All of the Company’s investments (other
than cash and cash equivalents) are classified as Level 3 under ASC 820.







29




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



4. Fair Value of Financial Instruments  – (continued)



The following tables summarize the valuation
of the Company’s investments measured at fair value based on the fair value hierarchy detailed above as of June 30, 2016
and December 31, 2015:





|                             |  | As of June 30, 2016
|---------------------------- |  | -------------------
|($ in thousands)             |  | Level 1            
|Senior Secured (1)(2)        |  | $                  
|Mezzanine                    |  |                    
|Preferred Equity Investments |  |                    
|Common Equity Investments    |  |                    
|Financial Assets             |  |                    
|                             |  | $                  



______________

| | (1) | Includes unfunded commitments with a fair value of $(0.1) million.                                                                                                                        
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Included in senior secured loans are loans structured as first lien, last out loans. These loans may in certain cases be subordinated in payment priority to other senior secured lenders.





|                             |  | As of December 31, 2015
|---------------------------- |  | -----------------------
|($ in thousands)             |  | Level 1                
|Senior Secured (1)(2)        |  | $                      
|Mezzanine                    |  |                        
|Preferred Equity Investments |  |                        
|Common Equity Investments    |  |                        
|Financial Assets             |  |                        
|                             |  | $                      



______________

| | (1) | Includes unfunded commitments with a fair value of $(0.1) million.                                                                                                                        
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Included in senior secured loans are loans structured as first lien, last out loans. These loans may in certain cases be subordinated in payment priority to other senior secured lenders.



The net change in unrealized gain attributable
to the Company’s Level 3 assets for the six months ended June 30, 2016 included in the net change in unrealized gain from
on investments in the Company’s consolidated statement of operations was $0.2 million. The net change in unrealized gain
attributable to the Company’s Level 3 assets for the six months ended June 30, 2015 included in the net change in unrealized
gain from investments in the Company’s consolidated statement of operations was $1.0 million.





30




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



4. Fair Value of Financial Instruments  – (continued)



The following table is a reconciliation of
investments in which significant unobservable inputs (Level 3) were used in determining fair value for the six months ended June
30, 2016:





|                                                                                                                                                                       |  | Six Months Ended June 30, 2016
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------
|                                                                                                                                                                       |  | Senior Secured                
|                                                                                                                                                                       |  | Investments                   
|($ in thousands)                                                                                                                                                       |  |                               
|Fair value, beginning of period                                                                                                                                        |  | $                             
|                                                                                                                                                                       |  |                               
|Total net realized and unrealized (loss)/gain on investments                                                                                                           |  |                               
|Total net accretion of discounts on investments                                                                                                                        |  |                               
|Purchases/issuances(1)                                                                                                                                                 |  |                               
|Sales                                                                                                                                                                  |  |                               
|Paydowns(1)                                                                                                                                                            |  |                               
|                                                                                                                                                                       |  |                               
|Fair value, end of period                                                                                                                                              |  | $                             
|                                                                                                                                                                       |  |                               
|Net change in unrealized (loss)/ gain from investments in our Consolidated Statement of Operations attributable to our Level 3 assets still held at the reporting date |  | $                             









______________

| | (1) | Includes non-cash restructuring of portfolio investments of $0.8 million. There were no transfers of investments
between levels for the six months ended June 30, 2016.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table is a reconciliation of
investments in which significant unobservable inputs (Level 3) were used in determining fair value for the six months ended June
30, 2015:





|                                                                                                                                                                       |  | Six Months Ended June 30, 2015
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------
|                                                                                                                                                                       |  | Senior Secured                
|                                                                                                                                                                       |  | Investments                   
|($ in thousands)                                                                                                                                                       |  |                               
|Fair value, beginning of period                                                                                                                                        |  | $                             
|                                                                                                                                                                       |  |                               
|Total net realized and unrealized (loss)/gain on investments                                                                                                           |  |                               
|Total net accretion of discounts on investments                                                                                                                        |  |                               
|Purchases/issuances(1)                                                                                                                                                 |  |                               
|Sales                                                                                                                                                                  |  |                               
|Paydowns(1)                                                                                                                                                            |  |                               
|                                                                                                                                                                       |  |                               
|Fair value, end of period                                                                                                                                              |  | $                             
|                                                                                                                                                                       |  |                               
|Net change in unrealized (loss)/ gain from investments in our Consolidated Statement of Operations attributable
to our Level 3 assets still held at the reporting date |  | $                             

______________

| | (1) | Includes non-cash restructuring of portfolio investments of $2.7 million. There were no transfers of investments
between levels  for the six months ended June 30, 2015.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------







31




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





4. Fair Value of Financial Instruments  – (continued)



The following table is a quantitative disclosure
about significant unobservable inputs (Level 3) that were used in determining fair value at June 30, 2016:





|                              |  | Quantitative Information about Level 3 Fair Value Measurements
|----------------------------- |  | --------------------------------------------------------------
|                              |  | Fair Value at                                                 
|                              |  | June 30, 2016                                                 
|                              |  |                                                               
|($ in thousands)              |  |                                                               
|Senior Secured Investments(1) |  |                                                               
|                              |  |                                                               
|                              |  |                                                               
|Mezzanine Investments         |  |                                                               
|                              |  |                                                               
|                              |  |                                                               
|Equity Investments(3)         |  |                                                               
|                              |  |                                                               
|                              |  |                                                               
|Financial Assets (4)          |  |                                                               
|                              |  |                                                               
|                              |  |                                                               
|                              |  |                                                               
|                              |  |                                                               
|Total                         |  | $                                                             



____________





|(1) |  | Includes total unfunded commitments of $(0.1) million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(2) |  | Market rate is calculated based on the fair value of the investments and interest expected to be received using the current rate of interest at the balance sheet date to maturity, excluding the effects of future scheduled principal amortizations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(3) |  | Includes preferred and common equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(4) |  | Financial Assets are valued by the level of risk associated with the underlying loan measured by the estimated loss
rate. The estimated loss rate is based on the historical performance of loans with similar characteristics, the borrowers credit
score obtained from an official credit reporting agency at origination, debt-to-income ratios at origination, information from
the borrower’s credit report at origination, as well as the borrower’s self-reported income range, occupation and employment
status at origination. Financial Asset risk ratings are assigned on a scale from A through F, with A having the lowest level of
risk and F having the highest level of risk. As of June 30, 2016, 21.1%, 33.6%, 34.1%, 8.1%, 3.0%, and 0.1%, of the total fair
value of Financial Assets was comprised of A, B, C, D, E and F risk rated loans, respectively. See Exhibit 99.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 for detail on the underlying loans.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(5) |  | Excludes non-operating portfolio companies, which we define as those loans collateralized by proved developed producing, or PDP, value or other hard assets. PDPs are proven revenues that can be produced with existing wells. As of June 30, 2016, $31.9 million of par value and $31.1 million of fair value was excluded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         











32




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





The following table is a quantitative disclosure
about significant unobservable inputs (Level 3) that were used in determining fair value at December 31, 2015:





|                               |  | Quantitative Information about Level 3 Fair Value Measurements
|------------------------------ |  | --------------------------------------------------------------
|                               |  | Fair Value at                                                 
|                               |  | December 31, 2015                                             
|                               |  |                                                               
|($ in thousands)               |  |                                                               
|Senior Secured Investments (1) |  |                                                               
|                               |  |                                                               
|                               |  |                                                               
|Mezzanine Investments          |  |                                                               
|                               |  |                                                               
|                               |  |                                                               
|Equity Investments (3)         |  |                                                               
|                               |  |                                                               
|                               |  |                                                               
|Financial Assets (4)           |  |                                                               
|                               |  |                                                               
|                               |  |                                                               
|                               |  |                                                               
|                               |  |                                                               
|Total                          |  | $                                                             



__________



|(1) |  | Includes total unfunded commitments of $(0.1) million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(2) |  | Market rate is calculated based on the fair value of the investments and interest expected to be received using the current rate of interest at the balance sheet date to maturity, excluding the effects of future scheduled principal amortizations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(3) |  | Includes preferred and common equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(4) |  | Financial Assets are valued by the level of risk associated with the underlying loan measured by the estimated loss rate. The estimated loss rate is based on the historical performance of loans with similar characteristics, the borrowers credit score obtained from an official credit reporting agency at origination, debt-to-income ratios at origination, information from the borrower’s credit report at origination, as well as the borrower’s self-reported income range, occupation and employment status at origination. Financial Asset risk ratings are assigned on a scale from A through F, with A having the lowest level of risk and F having the highest level of risk. As of December 31, 2015, 24.2%, 33.1%, 31.9%, 7.5%, 3.1%, and 0.2%, of the total fair value of Financial Assets was comprised of A, B, C, D, E and F risk rated loans, respectively. See Exhibit 99.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for detail on the underlying loans.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(5) |  | Excludes non-operating portfolio companies, which we define as those loans collateralized by proved developed producing, or PDP, value or other hard assets. PDPs are proven revenues that can be produced with existing wells. As of December 31, 2015, $33.5 million of par value and $32.7 million of fair value was excluded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       











33




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





4. Fair Value of Financial Instruments  – (continued)



Significant unobservable inputs used in the
fair value measurement of the Company’s Debt Investments include indicative bid quotations obtained from independent third
party pricing services (“consensus pricing”), multiples of market comparable companies, and relative comparable yields.



Significant decreases (increases) in consensus
pricing or market comparables could result in significantly lower (higher) fair value measurements. Significant increases (decreases)
in comparable yields could result in significantly lower (higher) fair value measurements. Generally, a change in the assumption
used for relative comparable yields is accompanied by a directionally opposite change in the assumptions used for pricing.



Significant unobservable inputs used in the
fair value measurement of the Company’s Equity Investments include market comparables. Significant decreases (increases)
in market comparables could result in significantly lower (higher) fair value measurements.



Significant unobservable inputs used in the
fair value measurement of the Company Financial Assets include interest rate, prepayment rate, unit loss rate, default rate multiplier
and discount rate.



Significant decreases (increases) in interest
rates or prepayment rates could result in significantly lower (higher) fair value measurements. Significant increases (decreases)
in unit loss rates, default rate multiplier or discount rates could result in significantly lower (higher) fair value measurements.



The composition of the Company’s portfolio
by industry at cost and fair value as of June 30, 2016 was as follows:





|Industry                                                                 |  | Cost of Investments |         | Fair Value of Investments
|------------------------------------------------------------------------ |  | ------------------- | ------- | -------------------------
|($ in thousands)                                                         |  |                     |         |                          
|Miscellaneous Manufacturing                                              |  | $                   | 76,581  |                          
|Miscellaneous Retail                                                     |  |                     | 50,145  |                          
|Health Services                                                          |  |                     | 33,464  |                          
|Consumer Finance Services                                                |  |                     | 26,166  |                          
|Communications                                                           |  |                     | 25,610  |                          
|Oil & Gas                                                                |  |                     | 24,757  |                          
|Miscellaneous Services                                                   |  |                     | 23,198  |                          
|Transportation Services                                                  |  |                     | 19,628  |                          
|Specialty Services                                                       |  |                     | 18,780  |                          
|Electrical Equipment                                                     |  |                     | 11,730  |                          
|Agricultural Services                                                    |  |                     | 11,188  |                          
|Broadcasting & Entertainment                                             |  |                     | 11,113  |                          
|Insurance Agents                                                         |  |                     | 10,281  |                          
|Building & Real Estate                                                   |  |                     | 9,857   |                          
|Cosmetics/Toiletries                                                     |  |                     | 9,774   |                          
|Business Services                                                        |  |                     | 9,757   |                          
|Food Stores - Retail                                                     |  |                     | 9,686   |                          
|Chemicals                                                                |  |                     | 9,609   |                          
|Printing & Publishing                                                    |  |                     | 9,032   |                          
|Automotive                                                               |  |                     | 7,493   |                          
|Equipment Rental & Leasing, Not Elsewhere Classified                     |  |                     | 6,993   |                          
|Metal Mining                                                             |  |                     | 6,026   |                          
|Computer Programming, Data Processing, & Other Computer Related Services |  |                     | 2,859   |                          
|Apparel Products                                                         |  |                     | 2,714   |                          
|                                                                         |  | $                   | 426,441 |                          







Refer to the consolidated schedule of investments
for detailed disaggregation of the Company’s investments.







34




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





4. Fair Value of Financial Instruments  – (continued)



The composition of the Company’s portfolio
by industry at cost and fair value as of December 31, 2015 was as follows:





|Industry                                                                 |  | Cost of Investments |         | Fair Value of Investments
|------------------------------------------------------------------------ |  | ------------------- | ------- | -------------------------
|($ in thousands)                                                         |  |                     |         |                          
|Miscellaneous Manufacturing                                              |  | $                   | 73,278  |                          
|Health Services                                                          |  |                     | 46,794  |                          
|Miscellaneous Retail                                                     |  |                     | 35,024  |                          
|Consumer Finance Services                                                |  |                     | 34,083  |                          
|Miscellaneous Services                                                   |  |                     | 32,985  |                          
|Communications                                                           |  |                     | 26,424  |                          
|Oil & Gas                                                                |  |                     | 24,952  |                          
|Transportation Services                                                  |  |                     | 19,125  |                          
|Specialty Services                                                       |  |                     | 13,954  |                          
|Electrical Equipment                                                     |  |                     | 12,185  |                          
|Broadcasting & Entertainment                                             |  |                     | 11,160  |                          
|Agricultural Services                                                    |  |                     | 10,339  |                          
|Insurance Agents                                                         |  |                     | 10,325  |                          
|Chemicals                                                                |  |                     | 10,102  |                          
|Cosmetics/Toiletries                                                     |  |                     | 10,010  |                          
|Business Services                                                        |  |                     | 9,989   |                          
|Building & Real Estate                                                   |  |                     | 9,962   |                          
|Food Stores - Retail                                                     |  |                     | 9,290   |                          
|Printing & Publishing                                                    |  |                     | 9,143   |                          
|Automotive                                                               |  |                     | 7,431   |                          
|Equipment Rental & Leasing, Not Elsewhere Classified                     |  |                     | 6,985   |                          
|Computer Programming, Data Processing, & Other Computer Related Services |  |                     | 2,918   |                          
|Apparel Products                                                         |  |                     | 2,714   |                          
|Retail-Building Materials, Hardware, Garden Supply & Mobile Home Dealers |  |                     | 1,986   |                          
|Nonferrous metal/minerals                                                |  |                     | 1,976   |                          
|Stone, Clay, Glass, & Concrete Products                                  |  |                     | 1,973   |                          
|Metal Mining                                                             |  |                     | 1,946   |                          
|                                                                         |  | $                   | 437,053 |                          





Refer to the consolidated schedule of investments
for detailed disaggregation of the Company’s investments.



5. Indemnifications



In the normal course of business, the Company
enters into certain contracts that provide a variety of indemnifications. The Company’s maximum exposure under these indemnifications
is unknown. However, no liabilities have arisen under these indemnifications in the past and, while there can be no assurances
in this regard, there is no expectation that any will occur in the future. Therefore, the Company does not consider it necessary
to record a liability for any indemnifications under U.S. GAAP.



6. Due To and Due From Counterparties



The Company executes
investment transactions with agents, brokers, investment companies, agent banks and other financial institutions. Due to and
due from counterparties include amounts related to unsettled purchase and sale transactions of investments, unsettled
purchases of common stock and principal paydowns receivable from the borrowers.



Amounts due to counterparties were $2.1 million
and $0.4 million as of June 30, 2016 and December 31, 2015, respectively. Amounts due from counterparties were $2.3 million and
$1.6 million as of June 30, 2016 and December 31, 2015, respectively.



7. Financing



As of June 30, 2016, the total carrying value of the Company’s aggregate debt outstanding was $223.1
million with a weighted average effective interest rate of 3.39%. The Company’s debt outstanding as of June 30, 2016 was
comprised of notes issued by GF 2013-2 and GLC Trust 2013-2 as well as Garrison SBIC borrowings.







35




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





7. Financing  – (continued)



The table below provides details of our outstanding
debt as of June 30, 2016:





|                          |  | Amortized      |         | Outstanding      |  |               |         |           |  |                  
|------------------------- |  | -------------- | ------- | ---------------- |  | ------------- | ------- | --------- |  | -----------------
|June 30, 2016             |  | Carrying Value |         | Principal at Par |  | Interest Rate |         | Rating(2) |  | Stated Maturity  
|($ in thousands)          |  |                |         |                  |  |               |         |           |  |                  
|Senior Secured Notes:     |  |                |         |                  |  |               |         |           |  |                  
|Class A-1R Notes          |  | $              | 31,100  |                  |  | $             | 31,100  |           |  | LIBOR + 1.90% (1)
|Class A-1T Notes          |  |                | 108,431 |                  |  |               | 111,175 |           |  | LIBOR + 1.80%    
|Class A-2 Notes           |  |                | 23,698  |                  |  |               | 24,150  |           |  | LIBOR + 3.40%    
|Class B Notes             |  |                | 24,557  |                  |  |               | 25,025  |           |  | LIBOR + 4.65%    
|Garrison SBIC Borrowings: |  |                |         |                  |  |               |         |           |  |                  
|SBIC 2016-10 A            |  |                | 12,291  |                  |  |               | 12,700  |           |  | 3.25% (3)        
|SBIC 2015-10 B            |  |                | 13,484  |                  |  |               | 14,000  |           |  | 3.57% (3)        
|GLC Trust 2013-2 Notes:   |  |                |         |                  |  |               |         |           |  |                  
|Class A Notes             |  |                | 9,517   |                  |  |               | 9,703   |           |  | 3.00%            
|                          |  | $              | 223,078 |                  |  | $             | 227,853 |           |  |                  



______________

|(1) |  | May bear interest at either the CP Rate (as defined in the indenture governing the CLO) or the London Interbank Offered Rate (“LIBOR”).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Represents an S&P rating as of the closing of the CLO.
|--- |  | ------------------------------------------------------



|(3) |  | Represents the stated interest rate and annual charge of our SBA-guaranteed debentures.
|--- |  | ---------------------------------------------------------------------------------------



The table below provides details of our outstanding
debt as of December 31, 2015:





|                          |  | Amortized      |         | Outstanding      |  |               |         |           |  |                   | 
|------------------------- |  | -------------- | ------- | ---------------- |  | ------------- | ------- | --------- |  | ----------------- | 
|December 31, 2015         |  | Carrying Value |         | Principal at Par |  | Interest Rate |         | Rating(2) |  | Stated Maturity  
|($ in thousands)          |  |                |         |                  |  |               |         |           |  |                   | 
|Senior Secured Notes:     |  |                |         |                  |  |               |         |           |  |                   | 
|Class A-1R Notes          |  | $              | 35,000  |                  |  | $             | 35,000  |           |  | LIBOR + 1.90% (1) | 
|Class A-1T Notes          |  |                | 108,248 |                  |  |               | 111,175 |           |  | LIBOR + 1.80%     | 
|Class A-2 Notes           |  |                | 23,667  |                  |  |               | 24,150  |           |  | LIBOR + 3.40%     | 
|Class B Notes             |  |                | 24,524  |                  |  |               | 25,025  |           |  | LIBOR + 4.65%     | 
|Garrison SBIC Borrowings: |  |                |         |                  |  |               |         |           |  |                   | 
|SBIC Borrowings           |  |                | 18,546  |                  |  |               | 19,340  |           |  | 3.57% (3)         | 
|GLC Trust 2013-2 Notes:   |  |                |         |                  |  |               |         |           |  |                   | 
|Class A Notes             |  |                | 15,664  |                  |  |               | 15,978  |           |  | 3.00%             | 
|                          |  | $              | 225,649 |                  |  | $             | 230,668 |           |  |                   | 



______________

|(1) |  | May bear interest at either the CP Rate (as defined in the indenture governing the CLO) or LIBOR.
|--- |  | -------------------------------------------------------------------------------------------------



|(2) |  | Represents an S&P rating as of the closing of the CLO.
|--- |  | ------------------------------------------------------



|(3) |  | Represents the stated interest rate and annual charge of our SBA-guaranteed debentures. The current balance includes interim financings of $5.3 million outstanding as of December 31, 2015. These interim financings have an interest rate of LIBOR + 1.04% and a maturity date of March 23, 2016, upon which they were pooled into the SBA-guaranteed debentures.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | Represents maturity date of our SBA-guaranteed debentures. The
    maturity date of our interim financings was March 23, 2016.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------





In accordance with the 1940 Act, with certain limited exceptions,
the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after
such borrowing (other than the SBA debentures of Garrison SBIC, as permitted by exemptive relief the Company has been granted by
the SEC). As of June 30, 2016 and December 31, 2015, the Company’s asset coverage for borrowed amounts was 203.2% and 208.8%,
respectively.





In accordance with the FASB issued ASU 2015-03,
Interest – Imputation of Interest (Topic 835), deferred debt issuance costs were retrospectively adjusted for
December 31, 2015 to be reflected as a liability, net of the carrying amount of the debt liabilities. As of December 31, 2015,
these deferred debt issuance costs were reflected as an asset. As a result, total assets and total liabilities as of December 31,
2015 have both decreased by $4.3 million.







36




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



7. Financing  – (continued)



The table below shows the weighted average
interest rates and weighted average effective interest rates, inclusive of deferred debt issuance costs, of our debt as of June
30, 2016 and December 31, 2015:





|                                                  |  | June 30, 2016 |      | December 31, 2015
|------------------------------------------------- |  | ------------- | ---- | -----------------
|                                                  |  |               |      |                  
|Senior Secured Revolving Notes:                   |  |               |      |                  
|Weighted average interest rate                    |  |               | 2.52 | %                
|Weighted average effective interest rate(1)       |  |               | 2.56 |                  
|Senior Secured Term Notes:                        |  |               |      |                  
|Weighted average interest rate                    |  |               | 3.10 |                  
|Weighted average effective interest rate(1)       |  |               | 3.47 |                  
|GLC Trust 2013-2 Class A Notes:                   |  |               |      |                  
|Weighted average interest rate                    |  |               | 3.00 |                  
|Weighted average effective interest rate(1)       |  |               | 3.38 |                  
|SBIC Borrowings:                                  |  |               |      |                  
|Weighted average interest rate                    |  |               | 3.42 |                  
|Weighted average effective interest rate(1)       |  |               | 3.82 |                  
|Total                                             |  |               |      |                  
|Total weighted average interest rate              |  |               | 3.06 |                  
|Total weighted average effective interest rate(1) |  |               | 3.39 |                  





__________

|(1) |  | Includes the effects of deferred debt issuance costs.
|--- |  | -----------------------------------------------------



Senior Secured Notes



On September 25, 2013, GF 2013-2 completed
the CLO through a private placement of (1) $50.0 million of Class A-1R revolving notes (“Class A-1R Notes”); (2) $111.2
million of Class A-1T notes (“Class A-1T Notes”); (3) $24.2 million of Class A-2 notes (“Class A-2 Notes”
and collectively with the Class A-1R Notes and the Class A-1T Notes, the “Class A Notes”); (4) $25.0 million of Class
B notes (“Class B Notes”); (5) $13.7 million of Class C notes (“Class C Notes”), which bear interest at
three-month LIBOR plus 5.50% (collectively, the Class A Notes, Class B Notes and Class C Notes are referred to as the “Secured
Notes”); and (6) $126.0 million of subordinated notes (“Subordinated Notes”), which do not have a stated interest
rate (collectively, the Secured Notes and the Subordinated Notes are referred to as the “GF 2013-2 Notes”).We utilized
the proceeds of the GF 2013-2 Notes, along with cash on hand, to refinance the existing Credit Facility. All of the GF 2013-2 Notes
are scheduled to mature on September 25, 2023. As of June 30, 2016, GARS had retained 100% of the Class C Notes, which are eliminated
in consolidation. The Subordinated Notes represent the residual interest in GF 2013-2. Immediately following the completion of
the CLO, GF 2013-2 Manager owned 100% of the Subordinated Notes, which are eliminated in consolidation.







37




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





7. Financing  – (continued)



At June 30, 2016, $18.9 million of the Class
A-1R Notes were undrawn. As of December 31, 2015, $15.0 million of the Class A-1R Notes undrawn. The Class A-1R Notes bear a 1.00%
annual fee on undrawn amounts. The fair value of the GF 2013-2 Notes approximated its carrying value on the consolidated statements
of financial condition as of June 30, 2016 and December 31, 2015, respectively.



The ability of GF 2013-2 to draw under the
Class A-1R Notes terminates on September 25, 2016, which is also the end of the extended reinvestment period. The Secured Notes
are secured by all of the assets held by GF 2013-2.



The indenture governing the notes issued
as part of the CLO provides that, to the extent cash is available from cash collections, the holders of the GF 2013-2 Notes are
to receive quarterly interest payments on the 20th day or, if not a business day, the next succeeding business day of February,
May, August and November of each year until the stated maturity.



Under the documents governing the CLO, there
are two coverage tests applicable to the Secured Notes. The first test compares the amount of interest received on the collateral
loans held by GF 2013-2 to the amount of interest payable on the Secured Notes under the CLO in respect of the amounts drawn and
certain expenses. To meet this first test, at any time, the aggregate amount of interest received on the collateral loans must
equal, after the payment of certain fees and expenses, at least 135.0% of the aggregate amount of interest payable on the Class
A Notes, 125.0% of the interest payable on the Class A Notes and Class B Notes, taken together, and 115% of the interest payable
on the Class A Notes, Class B Notes and Class C Notes, taken together.



The second test compares the aggregate principal
amount of the collateral loans, as calculated in accordance with the indenture, to the aggregate outstanding principal amount of
the Secured Notes in respect of the amounts drawn. To meet this second test at any time, the aggregate principal amount of the
collateral loans must equal at least 173.4% of the aggregate outstanding principal amount of the Class A Notes, 156.1% of the aggregate
principal amount of the Class A Notes and Class B Notes, taken together, and 148.1% of the aggregate outstanding principal amount
of the Class A Notes, Class B Notes and Class C Notes, taken together.



If the coverage tests are not satisfied with
respect to a quarterly payment date, GF 2013-2 will be required to apply available amounts to the repayment of interest on and
principal of the GF 2013-2 Notes to the extent necessary to satisfy the applicable coverage tests and, as a result, there may be
reduced funds available for GF 2013-2 to make additional investments or to make distributions on the Company’s equity interests
in GF 2013-2. Additionally, compliance is measured on each day collateral loans are purchased, originated or sold and in connection
with monthly reporting to the note holders.



Furthermore, if under the second coverage
test the aggregate principal amount of the collateral loans equals 125.0% or less of the aggregate outstanding principal amount
on the Class A-1T Notes and Class A-1R Notes, taken together, and remains so for ten business days, an event of default will be
deemed to have occurred. As of June 30, 2016 and December 31, 2015, the trustee for the CLO has asserted that all of the coverage
tests were met.



Garrison SBIC Borrowings



As
discussed in Note 1, Garrison SBIC received a license to operate as an SBIC from the SBA on May 26, 2015. The SBIC license allows
Garrison SBIC to obtain SBA-guaranteed debentures in an amount equal to twice its equity capitalization up to $150.0 million of
leverage, subject to the issuance of a capital commitment by the SBA and other customary procedures. On June 16, 2015, the SBA
issued Garrison SBIC a commitment to provide $35.0 million of leverage.







38




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





7. Financing  – (continued)



The
SBA issues SBA-guaranteed debentures bi-annually on pooling dates in March and September of each year. These debentures are non-recourse,
interest only debentures with a 10 year stated maturity, but may be prepaid at any time without penalty. The interest rate of the
debentures is fixed at the time of issuance and is based on a coupon rate over the ten year treasury rate at the time of issuance.
Interest on the debentures is payable on a semi-annual basis. The SBA issues interim financings to SBICs on non-pooling dates that
carry a lower interest rate than the debentures and mature on the next pooling date.



The
SBA, as a creditor, will have a superior claim to Garrison SBIC’s assets over the Company’s stockholders if Garrison
SBIC were to be liquidated, or if the SBA exercises its remedies under the SBA-guaranteed debentures issued by Garrison SBIC upon
an event of default.



As
ofJune 30, 2016, Garrison SBIC had regulatory capital of $35.0 million
and total SBIC borrowings outstanding of $26.7 million. The SBIC borrowings were comprised of $14.0 million and $12.7 million
of SBA guaranteed debentures that mature on September 1, 2025 and March 1, 2026, respectively.The fair value of the
SBIC borrowings approximated its carrying value on the consolidated statements of financial condition as of June 30, 2016 and
December 31, 2015. As of June 30, 2016, the Company had $8.3 million of available SBIC leverage capacity.



GLC Trust 2013-2 Notes



On
July 18, 2014, GARS completed the “GLC Trust 2013-2 Securitization”. The notes offered in
the GLC Trust 2013-2 Securitization were issued by GLC Trust 2013-2 and consisted of $36.9 million of Class A Notes (“GLC
Trust 2013-2 Class A Notes”) and $2.3 million of Class B Notes (“GLC Trust 2013-2 Class B Notes”, and collectively
with the GLC Trust 2013-2 Class A Notes, the “GLC Trust 2013-2 Notes”). As of June 30,
2016, GARS has retained all of the GLC Trust 2013-2 Class B Notes, which are eliminated in consolidation.



The
GLC Trust 2013-2 Class A Notes bear interest at 3.00% per annum and are scheduled to mature on July 15, 2021. The proceeds of the
GLC Trust 2013-2 Notes were used to refinance the GLC Trust 2013-2 Revolver, which was fully paid down and terminated concurrent
with the issuance of the GLC Trust 2013-2 Notes.



The
fair value of the GLC Trust 2013-2 Notes approximated the carrying value on the consolidated statements of financial condition
as ofJune 30, 2016 and December 31, 2015, respectively.



The indenture governing the GLC Trust 2013-2
Notes provides that, to the extent cash is available from cash collections, the holders of the GLC Trust 2013-2 Notes are to receive
monthly interest and principal payments on the 15th day or, if not a business day, the next succeeding business day, commencing
in August 2014, until the stated maturity.



Under the indenture governing the GLC Trust
2013-2 Notes, there are two applicable monthly tests. The first test compares the principal balance of the underlying loans to
the principal balance of the GLC Trust 2013-2 Notes. To meet this first test, the aggregate principal balance of the underlying
loans less the aggregate principal balance of the GLC Trust 2013-2 Notes must equal, at least, the greater of (1) 13.00% of the
aggregate principal balance of the underlying loans as of the end of the prior month and (2) 5.25% of the loan pool balance as
of July 11, 2014.



The second test compares the ratio of the
dollar amount of cumulative defaults to the original principal balance of the underlying loans as of July 11, 2014 (“Cumulative
Default Ratio”) to the Cumulative Default Ratio trigger level, as stated in the indenture. To meet this second test, the
Cumulative Default Ratio must not exceed the Cumulative Default Ratio trigger level.



If these tests are not satisfied with respect
to a monthly payment date and are not cured within 45 days, an event of default will be deemed to have occurred and the GLC Trust
2013-2 Notes will become immediately due and payable, in accordance with the terms of the indenture. As of June 30, 2016, all
of the coverage tests were met.







39




Garrison Capital
Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





7. Financing  – (continued)



Deferred Debt Issuance Costs and other Fees



Fees paid as part of the execution of
the Credit Facility, the refinance of the Credit Facility and the execution of the CLO in the amount of $6.2 million
consisted of facility fees of $4.3 million and other costs of $1.9 million, which included rating agency fees and legal fees.
Fees paid as part of the execution of the GLC Trust 2013-2 Securitization in the amount of $0.4 million consisted of legal
and other fees. For the six months endedJune 30,
2016, we paid total fees of$0.2million on our SBIC borrowings.Fees
paid as part of the execution of our SBIC borrowings include a 1.00% commitment fee on our $35.0 million commitment, 2.00%
leverage fees and 0.43% of other fees on amounts drawn. These costs are included in deferred debt issuance costs on the
consolidated statements of financial condition and will be amortized over the stated maturity of the respective loans, with
$4.2 million and $4.4 million of deferred debt issuance costs remaining as of June 30, 2016 and December 31, 2015,
respectively.



8. Related Party Transactions



Investment Advisory Agreement



GARS entered into the Investment Advisory
Agreement with the Investment Adviser, which was effective as of October 9, 2012 and subsequently amended and restated on May 6,
2014. A new Investment Advisory Agreement was approved by the Company’s stockholders on May 1, 2015. Under the Investment
Advisory Agreement, the Investment Adviser is entitled to a base management fee for its services calculated at an annual rate of
1.75% of gross assets, excluding cash and cash equivalents, and cash and cash equivalents, restricted, but including assets purchased
with borrowed funds. For purposes of the Investment Advisory Agreement, cash equivalents means U.S. government securities and commercial
paper maturing within 270 days of purchase.



Management Fees



The following table details our management
fee expenses for the three and six months ended June 30, 2016, and June 30, 2015:





|                      |  | Three Months Ended June 30, |       | Six Months Ended June 30,
|--------------------- |  | --------------------------- | ----- | -------------------------
|($ in thousands)      |  | 2016                        |       | 2015                     
|Management fees       |  |                             |       |                          
|Management fees       |  | $                           | 1,824 |                          
|Total management fees |  | $                           | 1,824 |                          







Management fees of $1.8 million were payable
as of both June 30, 2016 and December 31, 2015, and are included in management fee payable on the consolidated statements of financial
condition.



Incentive Fee Overview



Under the Investment Advisory Agreement,
the Investment Adviser is entitled to an incentive fee consisting of two components and a cap and deferral mechanism. The two components
are independent of each other, and may result in one component being payable even if the other is not.



The first component, which is income-based
and payable quarterly in arrears, equals 20% of the amount, if any, that the Company’s pre-incentive fee net investment income
exceeds a 2.00% quarterly (8.00% annualized) hurdle rate (the “Hurdle Rate”), subject to a “catch-up” provision
measured at the end of each calendar quarter.



The operation of the first component of the
incentive fee for each quarter is as follows:



|• |  | no incentive fee is payable to the Investment Adviser in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the Hurdle Rate;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|• |  | 100% of the Company’s pre-incentive fee net investment income with respect to that portion of the Company’s pre-incentive fee net investment income, if any, that exceeds the Hurdle Rate but is less than 2.50% in any calendar quarter (10.00% annualized). We refer to this portion of the Company’s pre-incentive fee net investment income (which exceeds the Hurdle Rate but is less than 2.50%) as the “catch-up”. The effect of the “catch-up” provision is that, if the Company’s pre-incentive fee net investment income exceeds 2.50% in any calendar quarter, the Investment Adviser will receive 20% of such pre-incentive fee net investment income as if the Hurdle Rate did not apply; and
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|• |  | 20% of the amount of the Company’s pre-incentive fee net investment income, if any, that exceeds 2.50% in any calendar quarter (10.00% annualized) (once the Hurdle Rate is reached and the catch-up is achieved).
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The portion of such incentive fee that is
attributable to deferred interest (such as PIK interest or original issue discount) will be paid to the Investment Adviser, together
with any other interest accrued on the loan from the date of deferral to the date of payment, only if and to the extent the Company
actually receives such interest in cash, and any accrual thereof will be reversed if and to the extent such interest is reversed
in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual. Any reversal
of such amounts would reduce net income for the quarter by the net amount of the reversal (after taking into account the reversal
of incentive fees payable) and would result in a reduction and possible elimination of the incentive fees for such quarter. For
the avoidance of doubt, no incentive fee will be paid to the Investment Adviser on amounts accrued and not paid in respect of deferred
interest.



The second component, which is capital gains-based,
is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement,
as of the termination date) and equals 20% of the Company’s cumulative aggregate realized capital gains through the end of
such year, computed net of the Company’s aggregate cumulative realized capital losses and aggregate cumulative unrealized
capital loss through the end of such year, less the aggregate amount of any previously paid capital gains incentive fees and subject
to the Incentive Fee Cap and Deferral Mechanism described below. The capital-gains component of the incentive fee excludes any
portion of realized gains (losses) that are associated with the reversal of any portion of unrealized gain/(loss) attributable
to periods prior to April 1, 2013. The capital gains component of the incentive fee is not subject to any minimum return to stockholders.







40




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



8. Related Party Transactions – (continued)



Under U.S. GAAP, we are required to accrue
a capital gains incentive fee based upon the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized
capital gain and loss on investments held at the end of each period. If such amount is positive at the end of a period, then
the Company will record a capital gains incentive fee equal to 20% of such amount, less the aggregate amount of actual capital
gains related incentive fees paid in all prior years. If such amount is negative, then there is no accrual for such period.



The Investment Advisory Agreement does not
permit unrealized capital gains for purposes of calculating the amount payable to the Investment Adviser. Amounts due related to
unrealized capital gains, if any, will not be paid to the Investment Adviser until realized under the terms of the Investment Advisory
Agreement (as described above).



Incentive Fee Cap and Deferral Mechanism



We have structured the calculation of these
incentive fees to include a fee limitation such that no incentive fee will be paid to our Investment Adviser for any fiscal quarter
if, after such payment, the cumulative incentive fees paid to our Investment Adviser for the period that includes such fiscal quarter
and the 11 full preceding fiscal quarters (the “Incentive Fee Look-back Period”) would exceed 20.0% of our Cumulative
Pre-incentive Fee Net Return during the applicable Incentive Fee Look-back Period. The Incentive Fee Look-back Period commenced
on April 1, 2013. Prior to April 1, 2016, the Incentive Fee Look-back Period consisted of fewer than 12 full fiscal quarters.





Cumulative Pre-Incentive Fee Net Return refers to the sum of (a) Pre-Incentive Fee Net
Investment Income for each period during the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains,
cumulative realized capital losses, cumulative unrealized capital depreciation and cumulative unrealized capital appreciation during
the applicable Incentive Fee Look-back Period.





The following table provides a breakdown
of our incentive fees for the three and six months ended June 30, 2016 and June 30, 2015:





|                                                      |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|----------------------------------------------------- |  | --------------------------- | ------ | -------------------------
|($ in thousands)                                      |  | 2016                        |        | 2015                     
|Incentive fees                                        |  |                             |        |                          
|Income-based incentive fees                           |  | $                           | 1,151  |                          
|Capital gains-based incentive fees(1)                 |  |                             | -      |                          
|Incentive fees subject to cap & deferral mechanism(2) |  |                             | (1,151 | )                        
|Total incentive fees                                  |  | $                           | -      |                          





__________

| | (1) | Capital Gains-Based Incentive Fee included the reversal
        of $(0.6) million and $(0.8) million of incentive fees on unrealized capital gains/(losses) as calculated under U.S. GAAP
        for the three and six months June 30, 2015, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | As of June 30, 2016, the Investment
        Adviser had calculated an aggregate of $15.6 million (net of $0.3 million waiver) of income-based incentive fees since July
        1, 2013, of which $10.6 million had been paid as of June 30, 2016.  However, our cumulative Pre-Incentive Fee Net Return has
        been decreased by the aggregate cumulative net realized and unrealized capital losses, as calculated under U.S. GAAP,
        experienced         through the Incentive Fee Look-back Period. As                 a           result,         as
        of         June         30,         2016,         aggregate           incentive                 fees             payable to
        the         Investment         Adviser         during          the         Incentive         Fee             Look-back
        Period         were             capped by                   the         Incentive Fee          Cap          and Deferral
        Mechanism at $7.6         million (i.e.,              20% of         our         Cumulative         Pre-Incentive Fee
        Net         Return,          net of waived fees, during the                         Incentive Fee           Look-back
        Period).
        
        Due to the fact that there is no clawback of amounts previously paid to the Investment Adviser in accordance
with the Investment Advisory Agreement, the Company has not recorded a receivable for the $3.0 million difference between amounts
paid under the Investment Advisory Agreement in prior quarters and the Incentive Fee Cap based on the Company’s Cumulative
Pre-Incentive Fee Net Return as of June 30, 2016.
        
        The $3.0 million difference may
be used to reduce future amounts earned by the Investment Adviser. However, as noted above, no incentive fee will be paid to the
Investment Adviser for any fiscal quarter if, after such payment, the cumulative incentive fees paid to our Investment Adviser
for the Incentive Fee Look-back Period would exceed 20% of our Cumulative Pre-Incentive Fee Net Return during the applicable Incentive
Fee Look-back Period. To the extent unrealized capital losses incurred as of June 30, 2016 are reversed within the applicable
Incentive Fee Look-back Period, the corresponding increase in our Cumulative Pre-Incentive Fee Net Return may result in the Investment
Adviser earning and being paid up to $5.2 million of income based incentive fees which are currently subject to the Incentive
Fee Cap.




        
        As of June 30, 2016, the Incentive
        Fee Look-back Period is in effect through June 30, 2019 and realized and unrealized capital gains and losses and pre-incentive
        net investment income earned through June 30, 2016 will cease to impact the Incentive Fee Cap and Deferral after this
        date.
        
        The Investment Adviser did not earn any aggregate incentive
        fees for the three and six months ended June 30, 2016. The Investment Adviser earned aggregate incentive fees of $1.0
        million and $1.7 million for the three and six months ended June 30, 2015. No incentive fees were payable on the consolidated
        statements of financial condition as of June 30, 2016 and December 31, 2015, respectively.







41




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





8. Related Party Transactions  – (continued)



Administration Agreement



As discussed in Note 1, GARS entered into
the Administration Agreement with GARS Administrator. Under the Administration Agreement, the GARS Administrator provides the Company
with office facilities, equipment, clerical, bookkeeping and record keeping services at such facilities and such other services
as the GARS Administrator, subject to review by the Board, from time to time determines to be necessary or useful to perform its
obligations under the Administration Agreement. The GARS Administrator is responsible for the financial and other records that
the Company is required to maintain and prepares reports to stockholders, and reports and other materials filed with the SEC. The
GARS Administrator provides on the Company’s behalf significant managerial assistance to those portfolio companies to which
the Company is required to provide such assistance. No managerial assistance was provided to any portfolio companies for the six
months ended June 30, 2016 and June 30, 2015.



In addition, the GARS Administrator assists
the Company in determining and publishing the Company’s net asset value, overseeing the preparation and filing of the Company’s
tax returns, and the printing and dissemination of reports to stockholders of the Company, and generally oversees the payment of
the Company’s expenses and the performance of administrative and professional services rendered to the Company by others.
The Company reimburses the GARS Administrator for the costs and expenses incurred by the GARS Administrator in performing its obligations
and providing personnel and facilities as described.



GLC Trust 2013-2 entered into the GLC Trust
2013-2 Administration Agreement with GARS Administrator. Fees incurred under this agreement are included in total administrator
expenses presented on the consolidated statement of operations.



Administrator charges for the three and six
months ended June 30, 2016 were $0.4 million and $0.7 million, respectively. Administrator charges for the three and six months
ended June 30, 2015 were $0.3 million and $0.5 million, respectively. No charges were waived by the GARS Administrator for the
three and six months ended June 30, 2016 and June 30, 2015. Administration fees of $0.2 million were payable to the GARS Administrator
as of June 30, 2016. No administration fees were payable to the GARS Administrator as of December 31, 2015.









42




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





8. Related Party Transactions  – (continued)



Directors’ Fees



The Company’s independent directors
each receive an annual fee of $75,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred
in connection with attending each in-person Board meeting and receive $1,000 plus reimbursement of reasonable out-of-pocket expenses
incurred in connection with attending each committee meeting.



In addition, the chairman of the audit committee
receives an annual fee of $10,000, the chairman of the valuation committee receives an annual fee of $10,000 and each chairman
of any other committee receives an annual fee of $5,000 for their additional services in these capacities (all such fees and reimbursements
collectively, “Directors’ Fees”). No compensation is paid to directors who are not independent of the Company
and the Investment Adviser.



For the three and six months ended June 30,
2016,   independent directors earned Directors’ Fees of $0.1 million and $0.2 million, respectively.  For the three
and six months ended June 30, 2015, independent directors earned Directors’ Fees of $0.1 million and $0.2 million, respectively.
No Directors’ Fees were payable as of June 30, 2016 and December 31, 2015.



Affiliated Stockholders



GSOF LLC, GSOF 2014 LLC, GSOF-SP LLC, GSOF-SP
2014 LLC, GSOF-SP II LLC, GSOF-SP 2014 II LLC, GSOF-SP DB LLC (subsidiaries of Garrison Special Opportunities Fund LP), GSOIF Corporate
Loan Pools Ltd. (a subsidiary of Garrison Special Opportunities Institutional Fund LP), GCOH SubCo 2014-1 LLC (a subsidiary of
Garrison Credit Opportunities Holdings L.P.), GCOH SubCo 2014-2 LLC (a subsidiary of Garrison Credit Opportunities Holdings L.P.),
Garrison Capital Fairchild I Ltd. (a subsidiary of Fairchild Offshore Fund L.P.), Garrison Capital Fairchild II Ltd. (a subsidiary
of Fairchild Offshore Fund II L.P.) and Garrison Capital Adviser Holdings MM LLC (collectively, the “Garrison Funds”)
are all entities that are owned by funds that are managed by the Investment Manager.



As of December 31, 2014, the Garrison Funds
owned an aggregate of 2,024,372, or 12.1%, of the total outstanding common shares of GARS, and the officers and directors of the
Company directly owned an aggregate of 73,032, or 0.4%, of the total outstanding common shares of GARS. On March 19, 2015, GSOF
LLC, GSOF-SP LLC, GSOF-SP II LLC, GSOF-SP DB LLC, GSOIF Corporate Loan Pools Ltd., and GCOH SubCo 2014-1 LLC. (collectively, the
“Garrison Offering Funds”) sold an aggregate 884,990 shares of GARS common stock in a secondary offering. In connection
with this sale, the Garrison Offering Funds agreed to reimburse the Company for certain fees and expenses in the amount of $18,654
incurred in connection with the filing of the Company’s Registration Statement. On March 23, 2015, the Garrison Offering
Funds sold an aggregate of 125,000 shares of GARS common stock in a private offering. On May 8, 2015, Garrison Capital Fairchild
I Ltd. and Garrison Capital Fairchild II Ltd sold an aggregate 200,000 shares of GARS common stock in a secondary offering.



On August 10, 2015 GSOF 2014 LLC, GSOF-SP
2014 LLC, GSOF-SP 2014 II LLC and GCOH SubCo 2014-2 LLC distributed an aggregate of 24,472 shares to certain officers and members
of senior management of the Company. As of December 31, 2015, Garrison Capital Fairchild I Ltd., Garrison Capital Fairchild II
Ltd. and Garrison Capital Adviser Holdings MM LLC owned an aggregate of 789,910, or 4.8%, of the total outstanding shares of GARS
common stock. The officers and directors of the Company owned an aggregate of 119,921, or 0.7%, of the total outstanding shares
of GARS common stock.



As of June 30, 2016, Garrison Capital Fairchild
I Ltd., Garrison Capital Fairchild II Ltd. and Garrison Capital Adviser Holdings MM LLC owned an aggregate of 789,910, or 4.9%,
of the total outstanding shares of GARS common stock, the officers and directors of the Company directly owned an aggregate of
177,374, or 1.1%, of the total outstanding shares of GARS common stock, and the Garrison Offering Funds held zero shares of common
stock.







43




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016





8. Related Party Transactions  – (continued)



Other



Garrison Loan Agency Services LLC acts as
the administrative and collateral agent for certain loans held by the Company. No fees were paid by the Company to Garrison Loan
Agency Services LLC during the three and six months ended June 30, 2016 and June 30, 2015.



The Company may invest alongside other clients
of the Investment Manager and their affiliates in certain circumstances where doing so is consistent with applicable law, SEC staff
interpretations and the terms of our exemptive relief.



For certain other expenses, the GARS Administrator
facilitates payments by GARS to third parties through the Investment Adviser or other affiliate. Other than the amount of expenses
paid to third parties no additional charges or fees are assessed by the GARS Administrator, Investment Advisor or other affiliate.



9. Financial Highlights



The following table represents financial
highlights for the Company for the six months ended June 30, 2016 and June 30, 2015:





|Per share data                                                      |  | Six Months EndedJune 30, 2016 |            | Six Months EndedJune 30, 2015
|------------------------------------------------------------------- |  | ----------------------------- | ---------- | -----------------------------
|($ in thousands, except share and per share amounts)                |  |                               |            |                              
|Net asset value per common share at beginning of period             |  | $                             | 13.98      |                              
|Increase in net assets from operations:                             |  |                               |            |                              
|Net investment income                                               |  |                               | 0.71       |                              
|Net realized (loss)/gain on investments                             |  |                               | (1.14      | )                            
|Net unrealized gain on investments                                  |  |                               | 0.03       |                              
|Net (decrease)/increase in net assets from operations               |  |                               | (0.40      | )                            
|Stockholder transactions                                            |  |                               |            |                              
|Repurchase of common stock                                          |  |                               | 0.06       |                              
|Distributions from net investment income                            |  |                               | (0.70      | )                            
|Total stockholder transactions                                      |  |                               | (0.64      | )                            
|Net asset value per common share at end of period                   |  |                               | 12.94      |                              
|                                                                    |  |                               |            |                              
|Per share market value at beginning of period                       |  | $                             | 12.17      |                              
|Per share market value at end of period                             |  |                               | 10.06      |                              
|Total book return (1)                                               |  |                               | (2.36      | )%                           
|Total market return (2)                                             |  |                               | (11.55     | )%                           
|Common shares outstanding at beginning of period                    |  |                               | 16,507,594 |                              
|Common shares outstanding at end of period                          |  |                               | 16,091,392 |                              
|Weighted average common shares outstanding                          |  |                               | 16,246,272 |                              
|Net assets at beginning of period                                   |  | $                             | 230,710    |                              
|Net assets at end of period                                         |  | $                             | 208,187    |                              
|Average net assets (3)                                              |  | $                             | 222,900    |                              
|Ratio of net investment income to average net assets (4)            |  |                               | 10.47      | %                            
|Ratio of net expenses to average net assets (4)                     |  |                               | 9.45       | %                            
|Ratio of portfolio turnover to average investments at fair value(5) |  |                               | 13.47      | %                            
|Asset coverage ratio (6)                                            |  |                               | 203.20     | %                            
|Average outstanding debt (7)                                        |  | $                             | 230,055    |                              
|Average debt per common share                                       |  | $                             | 14.30      |                              







_________



|(1) | Total book return equals the net increase of ending net asset value from operations plus the effect of repurchases of common stock over the net asset value per common share at the beginning of the period.                                                                                                                                                      
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                   
|(2) | Based upon the change in market price per share during the period and takes into account distributions, if any, reinvested in accordance with our dividend reinvestment plan.                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                   
|(3) | Calculated utilizing monthly net assets.                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                   
|(4) | During the six months ended June 30, 2016, $2.3 million of Income-based incentive fees were capped as
a result of the Incentive Fee Cap and Deferral Mechanism. Had these incentive fees been earned, the ratio of net investment income
to average net assets and the ratio of net expenses to average net assets would have been 8.38% and 11.53%, respectively.
|    |                                                                                                                                                                                                                                                                                                                                                                   
|(5) | Calculated based on monthly average investments at fair value.                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                   
|(6) | In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. Based on the exemptive relief received from the SEC, our SBIC Borrowings are excluded from the Company’s asset coverage test calculation.        
|    |                                                                                                                                                                                                                                                                                                                                                                   
|(7) | Calculated based on monthly debt outstanding.                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                   









44




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



10. Earnings per Share



The following table sets forth the computation
of the net increase in net assets per share resulting from operations, pursuant to FASB ASC 260, Earnings per Share, for
the six months ended June 30, 2016 and June 30, 2015:





|                                                               |  | Six Months Ended |            | Six Months Ended
|-------------------------------------------------------------- |  | ---------------- | ---------- | ----------------
|($ in thousands, except per share data)                        |  | June 30, 2016    |            | June 30, 2015   
|Net (decrease)/increase in net asset resulting from operations |  | $                | (6,579     | )               
|Basic weighted average shares outstanding                      |  |                  | 16,246,272 |                 
|Basic (loss)/earnings per share                                |  | $                | (0.40      | )               





11. Dividends and Distributions



The Company’s dividends and distributions
are recorded on the ex-dividend date. The following table reflects the cash distributions, including dividends and returns of capital
per share, declared on common stock for the six months ended June 30, 2016 and June 30, 2015:





|Record Dates                       |  | Board Approval Date |  | Payment Date   |  | Distribution Declared |        | Distribution Declared per Share
|---------------------------------- |  | ------------------- |  | -------------- |  | --------------------- | ------ | -------------------------------
|Six months ended June 30, 2016 (1) |  |                     |  |                |  | ($ in thousands)      |        |                                
|June 10, 2016                      |  | May 2, 2016         |  | June 24, 2016  |  | $                     | 5,655  |                                
|March 8, 2016                      |  | February 24, 2016   |  | March 28, 2016 |  |                       | 5,685  |                                
|                                   |  |                     |  |                |  | $                     | 11,340 |                                



__________

|(1) |  | Does not include any return of capital for tax purposes.
|--- |  | --------------------------------------------------------





|Record Dates                       |  | Board Approval Date |  | Payment Date     |  | Distribution Declared |        | Distribution Declared per Share
|---------------------------------- |  | ------------------- |  | ---------------- |  | --------------------- | ------ | -------------------------------
|Six months ended June 30, 2015 (1) |  |                     |  | ($ in thousands) |  |                      
|June 12, 2015                      |  | April 30, 2015      |  | June 26, 2015    |  | $                     | 5,866  |                                
|March 20, 2015                     |  | March 3, 2015       |  | March 27, 2015   |  |                       | 5,866  |                                
|                                   |  |                     |  |                  |  | $                     | 11,732 |                                



__________

|(1) |  | Does not include any return of capital for tax purposes.
|--- |  | --------------------------------------------------------



Dividends from net investment income and
distributions from net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may
differ from those amounts determined in accordance with U.S. GAAP.







45




Garrison Capital Inc. and Subsidiaries



Notes to Consolidated Financial Statements
(unaudited)



June 30, 2016



12. Commitments and Contingencies



The Company had outstanding commitments to fund investments totaling $8.7 million and $6.9 million under various
undrawn revolvers and other credit facilities as of June 30, 2016 and December 31, 2015, respectively.



In the ordinary course of business, the Company
may be named as a defendant or a plaintiff in various lawsuits and other legal proceedings. Such proceedings include actions brought
against the Company and others with respect to transactions to which the Company may have been a party. The outcomes of such lawsuits
are uncertain and, based on these lawsuits, the values of the investments to which they relate could decrease. Management does
not believe that as a result of litigation there would be any material impact on the consolidated financial condition of the Company.
The Company has had no outstanding litigation proceedings brought against it since the commencement of operations on December 17,
2010.



13. Stock Repurchase Program



On October 5, 2015, GARS adopted a share
repurchase plan that provides for repurchase of up to $10.0 million of its common stock at prices below GARS' net asset value per
share as reported in its most recent financial statements. Under the repurchase program, GARS may, but is not obligated to, repurchase
shares of its outstanding common stock in the open market or in privately negotiated transactions from time to time. Any repurchases
by GARS will comply with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and any applicable
requirements of the 1940 Act. Unless extended by the Board, the repurchase program will terminate on the earlier of October 5,
2016 or the repurchase of $10.0 million of GARS' common stock. The Board may amend this program, solely in its discretion, at any
time prior to its termination. GARS' net asset value per share was increased by approximately $0.10 as a result of the aggregate
share repurchases.





|                                             |  | Six Months Ended |         | Year Ended       
|-------------------------------------------- |  | ---------------- | ------- | -----------------
|($ in thousands, except per share data)      |  | June 30, 2016    |         | December 31, 2015
|Dollar amount repurchased                    |  | $                | 4,604   |                  
|Shares repurchased                           |  |                  | 416,202 |                  
|Average price per share                      |  | $                | 11.06   |                  
|Net asset per share increase                 |  | $                | 0.06    |                  
|Weighted average discount to net asset value |  |                  | (20.19  | )%               





14. Transactions with Non-control/Affiliate Investments





As required by the 1940 Act, investments are classified by level
of control. “Control Investments” are investments in those companies that the Company is deemed to control as defined
in the 1940 Act. “Affiliate Investments” are investments in those companies that are affiliated companies, as defined
in the 1940 Act, other than Control Investments. “Non-Control/Non-Affiliate Investments” are those that are neither
Control Investments nor Affiliate Investments.



Generally, under the 1940 Act, the Company is deemed to control
a company in which it has invested if it owns more than 25% of the voting securities of such company. The Company is deemed to
be an affiliate of a company in which it has invested if it owns 5% or more of the voting securities of such company.





|                                        |  | Six Months Ended June 30, 2016 
|--------------------------------------- |  | -------------------------------
|Portfolio Company                       |  | Fair value at December 31, 2015
|Non-control/affiliate investments       |  |                                
|Speed Commerce Operating Company LLC(1) |  | $                              
|Speed Commerce Investment Partners LLC  |  |                                
|                                        |  |                                
|Total non-control/affiliate investments |  | $                              

__________

|(1) |  | Comprised of two investments, including the Closing Date Term Loan and Delayed Draw Term Loan with both
a cost and fair value of $1.8 million and $0.2 million, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------















15. Subsequent Events



On August 5, 2016, GARS entered into a
new investment advisory agreement, which has the same material terms as the Investment Advisory Agreement, in connection with
changes in the ownership of the Investment Adviser and certain of its affiliates which resulted in the assignment of the
Investment Advisory Agreement and its termination under the 1940 Act. The new investment advisory agreement was previously
approved by the Board and the Company’s stockholders in accordance with the requirements of the 1940 Act.





On August 2, 2016, the Board approved a
distribution in the amount of $5.6 million, or $0.35 a share, which will be paid on September 23, 2016 to stockholders of record
as of September 9, 2016.



These consolidated financial statements were
approved by the Board and were available for issuance on August 9, 2016. Subsequent events have been evaluated through this date.
No material subsequent events other than as disclosed above have occurred through this date.





46






Item 2: Management’s Discussion and Analysis of Financial
Condition and Results of Operations



The information contained in this section should be read in
conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this Quarterly Report on
Form 10-Q. References to "we," "us," "our" and "Garrison Capital" refer to Garrison Capital
Inc. and its consolidated subsidiaries.



Forward-Looking Statements



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



|• |  | our future operating results;
|- |  | -----------------------------



|• |  | changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes to the value of our assets;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|• |  | our business prospects and the prospects of our current and prospective portfolio companies;
|- |  | --------------------------------------------------------------------------------------------



|• |  | the impact of investments that we expect to make;
|- |  | -------------------------------------------------



|• |  | the impact of increased competition;
|- |  | ------------------------------------



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



|• |  | the dependence of our future success on the general economy, including general economic trends, and its impact on the industries in which we invest;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



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



|• |  | the relative and absolute performance of Garrison Capital Advisers LLC, or the Investment Adviser, including in identifying suitable investments for us;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



|• |  | our expected financings and investments;
|- |  | ----------------------------------------



|• |  | the adequacy of our cash resources and working capital;
|- |  | -------------------------------------------------------



|• |  | our ability to make distributions to our stockholders;                    
|- |  | --------------------------------------------------------------------------
|  |  |                                                                           
|• |  | the effects of applicable legislation and regulations and changes thereto;



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



|• |  | the impact of future acquisitions and divestitures.
|- |  | ---------------------------------------------------



We use words such as “anticipate,” “believe,”
“expect,” “intend,” “may,” “might,” “will,” “should,” “could,”
“can,” “would,” “believe,” “estimate,” “anticipate,” “predict,”
“potential” and similar words to identify forward-looking statements. Our actual results could differ materially from
those projected in the forward-looking statements for any reason, including the factors set forth as “Risk Factors”
and elsewhere in this Quarterly Report on Form 10-Q.



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



You should understand that, under Section 27A(b)(2)(B) of the
Securities Act of 1933, as amended, and Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements
made in connection with this Quarterly Report on Form 10-Q or any periodic reports we file under the Exchange Act.





47






Overview



We are an externally managed, non-diversified, closed-end management
investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as
amended, or the 1940 Act. In addition, for tax purposes, we have elected to be treated as a regulated investment company, or RIC,
under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code, and intend to qualify annually for such treatment.
Our shares are currently listed on The NASDAQ Global Select Market under the symbol “GARS”.



Our investment objective is to generate current income and capital
appreciation by making investments generally in the range of $5.0 million to $25.0 million primarily in debt securities and
loans of U.S. based middle-market companies, which we define as those having annual earnings before interest, taxes, depreciation
and amortization, or EBITDA, of between $5.0 million and $30.0 million. Our goal is to generate attractive risk-adjusted returns
by assembling a broad portfolio of investments.



We invest primarily in (1) first lien senior secured loans,
(2) second lien senior secured loans, (3) “one-stop” senior secured or “unitranche” loans, (4) subordinated
or mezzanine loans, (5) unsecured consumer loans and (6) to a lesser extent, selected equity co-investments in middle-market companies.
We use the term “one-stop” or “unitranche” to refer to a loan that combines characteristics of traditional
first lien senior secured loans and second lien or subordinated loans. We use the term “mezzanine” to refer to a loan
that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s
other indebtedness.



We believe that the middle market offers attractive risk-adjusted
returns for debt investors. Historically, we believe there has been a persistent scarcity of available capital relative to demand,
which, from a lender’s perspective, has generally resulted in more favorable transaction structures, including enhanced covenant
protection and increased pricing relative to larger companies. We further believe that the turmoil in the markets has exacerbated
this scarcity of capital, as many traditional lenders to middle-market companies have exited the business or focused their attention
on larger borrowers. In addition, we believe that middle-market companies traditionally have exhibited lower default rates and
improved recoveries compared to larger borrowers and typically offer greater access to key senior managers, which we believe further
enhances the attractiveness of lending to this market segment and facilitates due diligence investigations and regular monitoring.



Our investment activities are managed by our Investment Adviser.
Our six member investment committee is comprised of Joseph Tansey, Brian Chase, Mitch Drucker, Susan George, Robert Chimenti and
Joshua Brandt. Our Investment Adviser is responsible for sourcing potential investments, conducting research and diligence on prospective
investments and equity sponsors, analyzing investment opportunities, structuring our investments and monitoring our investments
and portfolio companies on an ongoing basis. Under an investment advisory agreement, or the Investment Advisory Agreement, with
the Investment Adviser, we pay the Investment Adviser a base management fee and an incentive fee for its services. Garrison Capital
Administrator LLC, or the Administrator, provides certain administrative services and facilities necessary for us to operate, including
office facilities and equipment and clerical, bookkeeping and record-keeping services, pursuant to an administration agreement,
or the Administration Agreement. The Administrator oversees our financial reporting and prepares our reports to stockholders and
reports required to be filed with the SEC.



The Administrator also manages the determination and publication
of our net asset value and the preparation and filing of our tax returns and generally monitors the payment of our expenses and
the performance of administrative and professional services rendered to us by others. The Administrator may retain third parties
to assist in providing administrative services to us. To the extent that the Administrator outsources any of its functions, we
pay the fees associated with such functions on a direct basis without any profit to the Administrator.



As of June 30, 2016, we held investments in 59 portfolio companies with a fair value of $404.6 million, including
investments in 47 portfolio companies held through the collateralized loan obligation, or the CLO. The investments held by the
CLO as of June 30, 2016 consisted of senior secured loans fair valued at $299.8 million and related indebtedness of $191.0 million.
The loans held by the CLO (held at fair value), together with cash and other assets held by the CLO, equaled approximately $313.7
million as of June 30, 2016. As of June 30, 2016, our portfolio had an average investment size of approximately $6.0 million, a
weighted average yield on debt investments of 11.2% and a weighted average contractual maturity of 34 months. Weighted average
yield is calculated based on the fair value of the investments and interest expected to be received using the current rate of interest
at the balance sheet date to maturity, excluding the effects of future scheduled principal amortizations.







48




As of December 31, 2015, we held investments in 67 portfolio
companies with a fair value of $415.0 million, including investments in 50 portfolio companies held through the CLO. The investments
held by the CLO as of December 31, 2015 consisted of senior secured loans fair valued at $306.6 million and related indebtedness
of $194.8 million. As of that date, the loans held by the CLO (held at fair value), together with cash and other assets held by
the CLO, equaled approximately $323.5 million. As of December 31, 2015, our portfolio had an average investment size of approximately
$6.2 million, a weighted average yield on debt investments of 10.8% and a weighted average contractual maturity of 44 months.



Revenues



We generate revenue in the form of interest earned on the debt
investments that we hold and capital gains and distributions, if any, on the warrants or other equity interests that we may acquire
in portfolio companies. Our debt investments, whether in the form of senior secured, unitranche or mezzanine loans, typically have
a term of one to six years and bear interest at a fixed or floating rate. Interest is generally payable quarterly or semiannually,
with the amortization of principal generally being deferred for several years from the date of the initial investment. In some
cases, loans may have a payment-in-kind feature. The principal amount of the debt securities and any accrued but unpaid interest will generally
become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence
fees, fees for providing managerial assistance and possibly consulting fees. Loan origination fees, original issue discount and
market discount are recorded as a reduction of par value, and we then accrete such amounts into interest income. Upon the prepayment
of a loan or debt security, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums
on loans and debt securities as interest income when we receive such amounts.



Expenses



Our primary operating expenses include the payment of (1) the
base management fee and incentive fee to the Investment Adviser under the Investment Advisory Agreement; (2) the allocable portion
of overhead to the Administrator under the Administration Agreement; (3) the interest expense on our outstanding debt, if any;
and (4) our other operating costs, as detailed below. We bear all other costs and expenses of our operations and transactions,
including:



|• |  | our organization;
|- |  | -----------------



|• |  | calculating our net asset value and net asset value per share (including the cost and expenses of any independent valuation firms);
|- |  | -----------------------------------------------------------------------------------------------------------------------------------



|• |  | fees and expenses, including travel expenses, incurred by the Investment Adviser or payable to third parties in performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|• |  | offerings of our common stock and other securities;
|- |  | ---------------------------------------------------



|• |  | distributions on our shares;
|- |  | ----------------------------



|• |  | transfer agent and custody fees and expenses;
|- |  | ---------------------------------------------



|• |  | amounts payable to third parties relating to, or associated with, evaluating, making and disposing of investments;
|- |  | ------------------------------------------------------------------------------------------------------------------



|• |  | brokerage fees and commissions;
|- |  | -------------------------------



|• |  | registration fees;
|- |  | ------------------





49






|• |  | listing fees;
|- |  | -------------



|• |  | taxes;
|- |  | ------



|• |  | independent director fees and expenses;
|- |  | ---------------------------------------



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



|• |  | the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;
|- |  | ----------------------------------------------------------------------------------------------------------



|• |  | costs of holding stockholder meetings;
|- |  | --------------------------------------



|• |  | our fidelity bond;
|- |  | ------------------



|• |  | directors and officers/errors and omissions liability insurance and any other insurance premiums;
|- |  | -------------------------------------------------------------------------------------------------



|• |  | litigation, indemnification and other non-recurring or extraordinary expenses;
|- |  | ------------------------------------------------------------------------------



|• |  | direct costs and expenses of administration and operation, including audit and legal costs;
|- |  | -------------------------------------------------------------------------------------------



|• |  | fees and expenses associated with marketing efforts;
|- |  | ----------------------------------------------------



|• |  | dues, fees and charges of any trade association of which we are a member; and
|- |  | -----------------------------------------------------------------------------



|• |  | all other expenses reasonably incurred by us or the Administrator in connection with administering our business, including rent and our allocable portion of the costs and expenses of our chief compliance officer, chief financial officer and their respective staffs.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During periods of asset growth, we expect our general and administrative
expenses to be relatively stable or decline as a percentage of total assets and increase during periods of asset declines.



Recent Developments



On August 5, 2016, GARS entered into a new investment advisory agreement, which
has the same material terms as the Investment Advisory Agreement, in connection with changes in the ownership of the
Investment Adviser and certain of its affiliates which resulted in the assignment of the Investment Advisory Agreement and
its termination under the 1940 Act. The new investment advisory agreement was previously approved by the Board and the
Company’s stockholders in accordance with the requirements of the 1940 Act.



On August 2, 2016, our board of directors, or the Board, approved
a distribution in the amount of $5.6 million, or $0.35 a share, which will be paid on September 23, 2016 to stockholders of record
as of September 9, 2016.







50






Consolidated Results of Operations



The results of operations described below may not be indicative
of the results we report in future periods. Net income can vary substantially from period to period for various reasons, including
the recognition of realized gains and losses and unrealized gains and losses. As a result, quarterly comparisons of net income
may not be meaningful.



Consolidated operating results for the three and six months
ended June 30, 2016 and June 30, 2015 are as follows:









|                                                                |  | Three Months Ended |         | Three Months Ended |  | Three Months |        | Six Months Ended |  | Six Months Ended |        | Six Months
|--------------------------------------------------------------- |  | ------------------ | ------- | ------------------ |  | ------------ | ------ | ---------------- |  | ---------------- | ------ | ----------
|($ in thousands, except per share data)                         |  | June 30, 2016      |         | June 30, 2015      |  | Variance     |        | June 30, 2016    |  | June 30, 2015    |        | Variance  
|                                                                |  | (Unaudited)        |         | (Unaudited)        |  |              |        | (Unaudited)      |  | (Unaudited)      |        |           
|Total investment income                                         |  | $                  | 11,137  |                    |  | $            | 13,152 |                  |  | $                | (2,015 | )         
|Total expenses, including excise tax                            |  |                    | 5,387   |                    |  |              | 5,976  |                  |  |                  | (589   | )         
|Net investment income                                           |  |                    | 5,750   |                    |  |              | 7,176  |                  |  |                  | (1,426 | )         
|Net realized (loss) on investments                              |  |                    | (18,315 | )                  |  |              | (8,521 | )                |  |                  | (9,794 | )         
|Net change in unrealized gain on investments                    |  |                    | 8,681   |                    |  |              | 5,221  |                  |  |                  | 3,460  |           
|Net (decrease)/increase in net assets resulting from operations |  |                    | (3,884  | )                  |  |              | 3,876  |                  |  |                  | (7,760 | )         
|                                                                |  |                    |         |                    |  |              |        |                  |  |                  |        |           
|Net investment income per share                                 |  |                    | 0.36    |                    |  |              | 0.43   |                  |  |                  | (0.07  | )         
|Net realized/unrealized (loss) from investments per share       |  |                    | (0.60   | )                  |  |              | (0.20  | )                |  |                  | (0.40  | )         
|Net (loss)/earnings per share                                   |  |                    | (0.24   | )                  |  |              | 0.23   |                  |  |                  | (0.47  | )         
|Net asset value per share                                       |  |                    | 12.94   |                    |  |              | 15.29  |                  |  |                  | (2.35  | )         





Net Investment Income



Net investment income for the three and six months ended June 30, 2016 was $5.8 million and $11.6 million,
respectively. Net investment income for the three and six months ended June 30, 2015 was $7.2 million and $14.9 million, respectively.



Net investment income decreased by $(1.4) million for the three months ended June 30, 2016 from the three
months ended June 30, 2015 and decreased by $(3.3) million for the six months ended June 30, 2016 from the six months ended June
30, 2015, as described below under “Investment Income” and “Expenses.”



Investment Income





Investment income for the three and six months ended June 30, 2016 was $11.1 million
and $22.2 million, respectively. Investment income for the three and six months ended June 30, 2015 was $13.1 million and $26.6
million, respectively.





Investment income decreased by ($2.0) million for the three
months ended June 30, 2016 from the three months ended June 30, 2015 due to a decrease in interest income in the amount of $(1.3)
million and a decrease in other income of $(0.7) million. The decrease in interest income was largely driven by our non-performing
assets and lower investment balances during the three months ended June 30, 2016 as compared to June 30, 2015. The decrease in
other income was primarily driven by lower loan amendment and prepayment fees recognized during the three months ended June 30,
2016.



Investment income decreased by $(4.4) million for the
six months ended June 30, 2016 from the six months ended June 30, 2015 due to a  decrease in interest income in the amount
of $(3.3) million and a decrease in other income of $(1.1) million. The decrease in interest income was largely driven by our
non-performing assets and lower investment balances during the six months ended June 30, 2016 as compared to six months ended
June 30, 2015. The decrease in other income was primarily driven by lower loan amendment and prepayment fees received
during the six months ended June 30, 2016.



Expenses



Total expenses for the three and six months ended June 30, 2016
were $5.4 million and $10.6 million, respectively. Total expenses for the three and six months ended June 30, 2015 were $6.0 million
and $11.8 million, respectively.





51






The following table summarizes our expenses for the three and
six months ended June 30, 2016 and June 30, 2015:





|                       |  | Three Months Ended |       | Three Months Ended |  | Three Months |       | Six Months Ended |  | Six Months Ended |        | Six Months
|---------------------- |  | ------------------ | ----- | ------------------ |  | ------------ | ----- | ---------------- |  | ---------------- | ------ | ----------
|($ in thousands)       |  | June 30, 2016      |       | June 30, 2015      |  | Variance     |       | June 30, 2016    |  | June 30, 2015    |        | Variance  
|Interest               |  | $                  | 2,078 |                    |  | $            | 1,816 |                  |  | $                | 262    |           
|Management fees        |  |                    | 1,824 |                    |  |              | 1,983 |                  |  |                  | (159   | )         
|Incentive fees         |  |                    | -     |                    |  |              | 1,017 |                  |  |                  | (1,017 | )         
|Professional fees      |  |                    | 336   |                    |  |              | 299   |                  |  |                  | 37     |           
|Directors fees         |  |                    | 107   |                    |  |              | 101   |                  |  |                  | 6      |           
|Administrator expenses |  |                    | 445   |                    |  |              | 272   |                  |  |                  | 173    |           
|Other expenses         |  |                    | 597   |                    |  |              | 488   |                  |  |                  | 109    |           
|Total expenses         |  | $                  | 5,387 |                    |  | $            | 5,976 |                  |  | $                | (589   | )         





Interest expense increased $0.3 million and $0.4 million for the three and six months ended June 30, 2016, respectively,
from the three and six months ended June 30, 2015, primarily due to an increase in the average effective interest rate on debt
outstanding. As of June 30, 2016 and June 30, 2015, the weighted average effective interest rate for total debt outstanding was
3.39% and 2.97%, respectively.



Management fees decreased by $(0.2) and $(0.3) million for the
three and six months ended June 30, 2016, respectively, from the three and six months ended June 30, 2015, primarily due to lower
average gross asset balances.



Incentive fees decreased
by $(1.0) million and $(1.7) million for the three and six months ended June 30, 2016, respectively, from the three and six months
ended June 30, 2015. The decrease in incentive fees during the three and six months ending June 30, 2016 was a result of the reversal
of Income-based incentive fees that were subject to the Incentive Fee Cap and Deferral Mechanism. These reversals were driven by
realized and unrealized losses on investments. Refer to Note 8 of our consolidated financial statements for additional discussion
of our incentive fee.



Professional fees increased by $0.1 million for the six months
ended June 30, 2016, from the six months ended June 30, 2015 primarily driven by higher audit and consulting fees.



Administrator expenses increased by $0.2 million for the three
and six months ended June 30, 2016, from the three and six months ended June 30, 2015 primarily driven by higher overhead costs.



Other expenses increased by $0.1 million for the three and six
months ended June 30, 2016, from the three and six months ended June 30, 2015 primarily due to higher excise tax expense recorded.



Net Realized (Loss)/Gain and Unrealized (Loss)/Gain on Investments



For the three and six months ended June 30, 2016 we realized
a net loss on investments of $(18.3) million and $(18.4) million, respectively.







Net realized losses for the three months ended June 30, 2016 were primarily driven
by a $(12.6) million loss on Speed Commerce, Inc., a $(5.8) million loss on Forest Park Medical Center at Fort Worth and
$(0.3) of realized losses in the GLC Trust 2013-2’s consumer loan portfolio. This was partially offset by a $0.3
million gain on Ellman International, Inc. and $0.1 million of gains from the partial and full repayment and sales of other
portfolio investments.



Net realized losses for the six months ended June 30, 2016 were primarily driven by a
$(12.6) million loss on Speed Commerce, Inc., a $(5.8) million loss on Forest Park Medical Center at Fort Worth and $(0.7) of realized
losses in the GLC Trust 2013-2’s consumer loan portfolio. This was partially offset by a $0.3 million gain on Ellman International,
Inc. and $0.4 million of gains from the partial and full repayment and sales of other portfolio investments.







For the three and six months ended June 30, 2015 we realized
a net loss on investments of $(8.5) million and $(9.0) million, respectively.





Net realized losses for the three months ended June 30, 2015 were primarily driven by
a $(4.4) million loss incurred from the early full repayment of Midwest Technical Institute, Inc., a $(4.1) million loss incurred
from the significant restructuring of Anchor Hocking, LLC and $(0.6) million of realized losses in GLC Trust 2013-2’s consumer
loan portfolio, offset by $0.6 million of realized gains on the early full repayment of eight portfolio investments, the sale of
one portfolio investment and other partial repayments.



Net realized losses for the six months ended June 30, 2015 were primarily driven by a
$(4.4) million loss incurred from the early full repayment of Midwest Technical Institute, Inc., a $(4.1) million loss incurred
from the significant restructuring of Anchor Hocking, LLC and $(1.3) million of realized losses in GLC Trust 2013-2’s consumer
loan portfolio, offset by $0.8 million of realized gains on the early full repayment of eleven portfolio investments, the sale
of one portfolio investment and other partial repayments.







52






For the three and six months ended June 30, 2016, the net change
in unrealized gain on investments was $8.7 million and $0.2 million, respectively.





The net change in unrealized gain for the three months ended June 30, 2016 was primarily
driven by the reversal of prior period unrealized losses on the Speed Commerce, Inc and Forest Park Medical Center at Fort Worth
investments in the amounts of $11.1 million and $5.3 million, respectively. In addition, we recognized positive fair value adjustments
of $0.6 million and $0.5 million on our syndicated credits and on our GLC Trust 2013-2’s consumer loan portfolio, respectively.
This was offset by $(7.1) million of negative credit-related adjustments on our investments in BFN Operations LLC, SC Academy Holdings,
Inc., and Forest Park Medical Center at San Antonio and a $(1.7) million of negative market-related markdown on our preferred equity
investment in Prosper Marketplace.



The net change in unrealized gain for the six months ended June 30, 2016 was primarily
driven by the reversal of prior period unrealized losses on the Speed Commerce, Inc and Forest Park Medical Center at Fort Worth
investments in the amounts of $9.8 million and $1.7 million, respectively. This was offset by a $(9.0) million of negative credit-related
adjustments on our investments in BFN Operations LLC, SC Academy Holdings, Inc., and Forest Park Medical Center at San Antonio
and a net $(2.3) million of negative market-related adjustments. These market-related adjustments were primarily driven by our
preferred equity investment in Prosper Marketplace and our syndicated loan credits.







For the three and six months ended June 30, 2015 the net change in unrealized gain on
investments was $5.2 million and $1.0 million, respectively.



The net change in unrealized gain for the three months ended June 30, 2015 was
driven primarily by the reversal of prior period unrealized losses in the amount of $6.5 million offset by $(1.3) million of
unrealized losses in the value of the remaining portfolio. Reversal of prior period unrealized losses were as a result of the
early full repayment of two portfolio investments in the amount of $3.2 million and the significant restructuring of one
portfolio investment in the amount of $3.3 million. Decreases in the value of the remaining portfolio were primarily as a
result of the negative credit related adjustment of one portfolio investment in the amount of $(1.1) million and $(0.2)
million of losses in the market value of the remaining portfolio.



The net change in unrealized gain for the six months ended June 30, 2015 was driven
primarily by the reversal of prior period unrealized losses in the amount of $3.2 million offset by $(2.2) million of
unrealized losses in the value of the remaining portfolio. Reversal of prior period unrealized losses were as a result of the
early full repayment of one portfolio investment in the amount of $1.0 million and the significant restructuring of one
portfolio investment in the amount of $2.7 million offset by repayments of $(0.5) million. Decreases in the value of the
remaining portfolio were primarily as a result of the negative credit related adjustment of two portfolio investments in the
amount of $(2.8) million offset by $0.6 million of gains in the market value of the remaining portfolio.



Net Increase/(Decrease) in Net Assets from Operations



We had a net asset value per common share outstanding on June
30, 2016 of $12.94. We had a net asset value per common share outstanding on December 31, 2015 of $13.98.



Based on 16,246,272 basic weighted average shares outstanding, the net decrease in net
assets from operations per share for the six months ended June 30, 2016 was $(0.40).





Based on 16,758,779 basic weighted average shares outstanding,
the net increase in net assets from operations per share for the six months ended June 30, 2015 was $0.41.



Liquidity and Capital Resources



As a business development company, we distribute
substantially all of our net income to our stockholders and will have an ongoing need to raise additional capital for
investment purposes. We generate cash primarily from offerings of our securities, the CLO, as described below, Garrison
Capital SBIC LP, or Garrison SBIC, other borrowings we may incur, and cash flows from operations, including interest earned from
the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one
year or less.



53






As of June 30, 2016 and December 31, 2015, we had cash of $18.1
million and $25.0 million, respectively. Also, as of June 30, 2016 and December 31, 2015, we had restricted cash of $7.3 million
and $11.8 million, respectively.



In addition to proceeds from public and private offerings of
securities, our CLO and our GLC Trust 2013-2 Notes, as of June 30, 2016 we have identified eight portfolio companies with a total
par value of $25.0 million and a fair value of $23.6 million which we have defined as transitory and consist of investments below
the low end of our portfolio yield target of 9.0%. We view these investments as an additional source of liquidity to meet our investment
objectives.



Our primary use of funds from operations includes investments
in portfolio companies, cash distributions to holders of our common stock, payments of interest on our debt, and payments of fees
and other operating expenses we incur. We believe that our existing cash and cash equivalents, available borrowings and our transitory
portfolio as of June 30, 2016 will be sufficient to fund our anticipated funding requirements through at least June 30, 2017.



On February 24, 2016 the Board approved a distribution in the
amount of $5.8 million, or $0.35 a share, which was paid on March 28, 2016 to stockholders of record as of March 8, 2016. On May
2, 2016 the Board approved a distribution in the amount of $5.7 million, or $0.35 a share, which was paid on June 24, 2016 to
stockholders of record as of June 10, 2016.







During the six months ended June 30, 2016, cash decreased by $(6.8) million as a result
of net cash used by financing activities in the amount of $(18.9) million offset by net cash provided by operating activities of
$12.1 million.





During the six months ended June 30, 2016, cash provided by operating activities resulted
mainly from net investment income in the amount of $5.8 million, repayments and sales of investments in the amount of $28.7 million
and $27.0 million, respectively, offset by purchases of investments of $(61.8) million, and realized losses from investments in
the amount of $(18.4) million. Net cash used in financing activities resulted from cash distributions in the amount of $(11.3)
million, repurchases of common stock in the amount of $(4.6) million, repayment of the GLC Trust 2013-2 Class A notes in the amount
of $(6.3) million and debt issuance costs of $(0.2) million, repayment of the senior secured revolving notes in the amount of
$(3.9) million, offset by proceeds from the Garrison SBIC borrowings in the amount of $7.4 million.





During the six months ended June 30, 2015, cash increased by
$14.5 million as a result of net cash provided by operating activities of $33.4 million offset by net cash used in financing activities
in the amount of $(18.9) million.



During the six months ended June 30, 2015, cash provided by
operating activities resulted mainly from $14.9 million of net investment income and $26.7 million of net repayments and sales
of investments. This was offset by a $(6.4) million change in restricted cash. Net cash used in financing activities resulted from
$(11.7) million in cash distributions, $(7.8) million in repayments of the GLC Trust 2013-2 Class A notes and $(2.4) million in
repayments of the CLO revolving notes, offset by proceeds from Garrison SBIC borrowing in the amount of $3.5 million.



As of June 30, 2016 and December 31, 2015, we had $8.7 million and $6.9 million, respectively, of unfunded
commitments with a fair value of $(0.1) million and $(0.1) million, respectively. These amounts may or may not be funded to the
borrowing party now or in the future. The unfunded commitments relate to loans with various maturity dates, but the entire amount
was eligible for funding to the borrowers as of June 30, 2016 and December 31, 2015, respectively, subject to the terms of each
loan’s respective credit agreement.



Subject to leverage and borrowing base restrictions, as of June 30, 2016, we had approximately $18.9 million available
for additional borrowings under the CLO and $8.3 million of available small business investment company, or SBIC, leverage. As
of December 31, 2015, we had approximately $15.0 million available for additional borrowings under the CLO and $15.7 million of
available SBIC leverage.



54






Portfolio Composition and Select Portfolio Information



As of June 30, 2016, we held investments in 59 portfolio companies with a fair value of $404.6 million. As
of June 30, 2016, our portfolio had an average investment size of approximately $6.0 million, a weighted average yield on debt
investments of 11.2% and a weighted average contractual maturity of 34 months.



The following table shows select information of our portfolio
for the periods from June 30, 2015 to June 30, 2016.





|                                                                     |  | June 30, |         | March 31, |  | December 31, |         | September 30, |  | June 30,
|-------------------------------------------------------------------- |  | -------- | ------- | --------- |  | ------------ | ------- | ------------- |  | --------
|Portfolio characteristics ($ in thousands, % based on market value)* |  | 2016     |         | 2016      |  | 2015         |         | 2015          |  | 2015    
|Total Market Value                                                   |  | $        | 404,594 |           |  | $            | 405,554 |               |  | $       
|Number of portfolio companies                                        |  |          | 59      |           |  |              | 63      |               |  |         
|Average investment size (1)                                          |  | $        | 5,977   |           |  | $            | 6,188   |               |  | $       
|Weighted average yield (2)                                           |  |          | 11.2    | %         |  |              | 11.2    | %             |  |         
|Weighted average price (1)                                           |  |          | 96.1    |           |  |              | 90.9    |               |  |         
|First lien                                                           |  |          | 93.2    | %         |  |              | 92.4    | %             |  |         
|Second lien & mezzanine/subordinated                                 |  |          | 1.9     | %         |  |              | 1.9     | %             |  |         
|Consumer loans                                                       |  |          | 2.9     | %         |  |              | 3.5     | %             |  |         
|Equity & other                                                       |  |          | 2.0     | %         |  |              | 2.2     | %             |  |         
|Core(3)                                                              |  |          | 94.1    | %         |  |              | 94.6    | %             |  |         
|Transitory(3)                                                        |  |          | 5.9     | %         |  |              | 5.4     | %             |  |         
|Originated (4)                                                       |  |          | 57.8    | %         |  |              | 57.5    | %             |  |         
|Club (5)                                                             |  |          | 26.3    | %         |  |              | 27.3    | %             |  |         
|Purchased                                                            |  |          | 15.9    | %         |  |              | 15.2    | %             |  |         
|Fixed (1)                                                            |  |          | 5.3     | %         |  |              | 5.9     | %             |  |         
|Floating (1)                                                         |  |          | 94.7    | %         |  |              | 94.1    | %             |  |         
|Performing (1)                                                       |  |          | 98.8    | %         |  |              | 95.9    | %             |  |         
|Non-accrual (1)                                                      |  |          | 1.2     | %         |  |              | 4.1     | %             |  |         
|Weighted average debt/EBITDA (1) (2) (6)                             |  |          | 3.7     | x         |  |              | 3.7     | x             |  |         
|Weighted average risk rating (1)                                     |  |          | 2.52    |           |  |              | 2.66    |               |  |         





__________

* Table excludes positions with a market value of zero.



| | (1) | Excludes consumer loans and equity investments.
| | --- | -----------------------------------------------



| | (2) | Excludes investments with a risk rating of four, unfunded revolvers and equity investments.                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                
| | (3) | The period ended March 31, 2016 includes the transfer of one portfolio company, total par of $4.8 million, to core from transitory, based on the current yield.



| | (4) | Originated positions include investments where we have sourced and led the execution of the deal.
| | --- | -------------------------------------------------------------------------------------------------



| | (5) | Club positions include investments where we provided direct lending to a borrower with one or two other lenders but did not lead the deal.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Excludes non-operating portfolio companies, which we define as those investments collateralized by real estate, proved developed producing value, or PDP, or other hard assets.  PDPs are proven revenues that can be produced with existing wells. As of June 30, 2016, $31.9 million of par value and $31.1 million of market value was excluded.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





55






Ongoing Monitoring



We view active portfolio monitoring as a vital part of the investment
process. Our Investment Adviser monitors the financial trends of each portfolio company to determine if it is meeting its respective
business plan and to assess the appropriate course of action for each company.



Our Investment Adviser uses several methods of evaluating and
monitoring the performance and fair value of our investments, which may include the following:



| | • | assessment of success in adhering to portfolio company’s 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 portfolio companies in the industry, if any;
| | - | -----------------------------------------------------------------



| | • | attendance at and participation in board meetings; and
| | - | ------------------------------------------------------



| | • | review of monthly and quarterly financial statements and financial projections for portfolio companies.
| | - | -------------------------------------------------------------------------------------------------------



Our Investment Adviser assigns an internal rating for each of
our portfolio companies. The rating scale is a numeric scale of 1 to 4 based on the credit attributes and prospects of the portfolio
company’s business. In general, we use the ratings as follows:



| | • | a rating of 1 denotes a high quality investment with no loss of principal expected;
| | - | -----------------------------------------------------------------------------------



| | • | a rating of 2 denotes a moderate to high quality investment with no loss of principal expected;
| | - | -----------------------------------------------------------------------------------------------



| | • | a rating of 3 denotes a moderate quality investment with market rates of expected loss of principal and potential non-compliance with financial covenants; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a rating of 4 denotes a low quality investment with an expected loss of principal. In the case of risk grade 4 loans, our Investment Adviser will assign a recovery value to the loan.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table shows the distribution of our investments
on the 1 to 4 investment risk scale at fair value, excluding our interest in GLC Trust 2013-2 and equity investments as of June
30, 2016 and December 31, 2015:





|                 |  | As of June 30, 2016     |         | As of December 31, 2015      
|---------------- |  | ----------------------- | ------- | -----------------------------
|($ in thousands) |  | InvestmentsatFair Value |         | Percentage ofTotalInvestments
|Risk Rating 1    |  | $                       | 28,116  |                              
|Risk Rating 2    |  |                         | 140,791 |                              
|Risk Rating 3    |  |                         | 211,342 |                              
|Risk Rating 4    |  |                         | 4,744   |                              
|                 |  | $                       | 384,993 |                              









The weighted average risk rating of the portfolio was 2.52
and 2.66 as of June 30, 2016 and December 31, 2015, respectively.





Inflation



Inflation has not had a significant effect on our results of
operations in any of the reporting periods presented in our financial statements. However, from time to time, inflation may impact
the operating results of our portfolio companies.





56






Off-Balance Sheet Arrangements



We may become a party to financial instruments with off-balance
sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may
include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount
recognized in the balance sheet. As of June 30, 2016 and December 31, 2015, we had $8.7 million and $6.9 million of outstanding
commitments to fund such investments, respectively.





Contractual Obligations



A summary of our significant contractual payment obligations
as of June 30, 2016 is as follows:





|                               |  | Payments Due by Period
|------------------------------ |  | ----------------------
|                               |  | Less Than             
|($ in thousands)               |  | 1 Year                
|CLO Facility II                |  | $                     
|GLC Trust 2013-2 Class A Notes |  |                       
|SBIC Borrowings                |  |                       
|Total contractual obligations  |  | $                     





We have certain contracts under which we have material future
commitments. Under the Investment Advisory Agreement, the Investment Adviser provides us with investment advisory and management
services. We have agreed to pay for these services (1) a base management fee equal to a percentage of the average adjusted value
of our gross assets and (2) an incentive fee based on our performance.



We entered into the Administration Agreement on October 9, 2012
with the Administrator. Under the Administration Agreement, the Administrator furnishes us with office facilities and equipment,
provides us clerical, bookkeeping and record keeping services and provides us with other administrative services necessary to conduct
our day-to-day operations.



If any of the contractual obligations discussed above are terminated,
our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense
in locating alternative parties to provide the services we expect to receive under our Investment Advisory Agreement and our Administration
Agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.



Both the Investment Advisory Agreement and the Administration
Agreement may be terminated by either party without penalty upon no fewer than 60 days’ written notice to the other.



Critical Accounting Policies



The preparation of our financial statements in accordance with
generally accepted accounting principles in the United States of America requires 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. We have identified the
following as critical accounting policies.





57






Basis for Consolidation



Under the investment company rules and regulations
pursuant to the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies,
codified in Topic 946, Financial Services-Investment Companies, or ASC Topic 946, we are precluded from consolidating
any entity other than another investment company. We generally consolidate any investment company when we own 100% of its
partners’ or members’ capital or equity units. ASC Topic 946 provides for the consolidation of a controlled
operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries.
Garrison Funding 2013-2 Manager owns a 100% equity interest in the CLO, which is an investment company for accounting
purposes, and also provides collateral management services solely to the CLO. As such, we have consolidated the accounts of
these entities into our financial statements. Our blocker subsidiaries, Walnut Hill II LLC, Forest Park II LLC, GLC Trust
2013-2 and Garrison SBIC are 100% owned investment companies. As such, we have consolidated the accounts of these entities
into our financial statements. As a result of this consolidation, the amount outstanding under the CLO and the GLC Trust
2013-2 Notes are treated as our indebtedness.



Valuation of Portfolio Investments



We value our investments in accordance with the Financial
Accounting Standards Board’s Accounting Standards Codification Topic 820 Fair Value Measurements and Disclosures (formerly FASB
Statement No. 157), or ASC Topic 820. ASC Topic 820 defines fair value, establishes a framework for measuring fair value and
expands disclosures about assets and liabilities measured at fair value. ASC Topic 820’s definition of fair value
focuses on exit price in the principal, or most advantageous, market and prioritizes the use of market-based inputs over
entity-specific inputs within a measurement of fair value. ASC Topic 820 classifies the inputs used to measure these fair
values into the following hierarchy:



| | Level 1  — | quoted unadjusted prices in active markets for identical investments as of the reporting date.
| | ---------- | ----------------------------------------------------------------------------------------------



| | Level 2  — | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc.).
| | ---------- | --------------------------------------------------------------------------------------------------------------------------------------



| | Level 3  — | significant unobservable inputs (including the Investment Adviser’s own assumptions about the assumptions market participants would use in determining the fair values of investments).
| | ---------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The valuation process is conducted at the end of each fiscal
quarter, with a portion of our valuations of portfolio companies without market quotations subject to review by the independent
valuation firms each quarter.



Our portfolio consists of primarily debt investments and unsecured
consumer loans. The fair value of our investments is initially determined by investment professionals of our Investment Adviser
and ultimately determined by the Board on a quarterly basis.



In valuing our debt investments, the Investment Adviser generally
uses various approaches, including proprietary models that consider the analyses of independent valuation agents as well as credit
risk, liquidity, market credit spreads, other applicable factors for similar transactions, bid quotations obtained from other financial
institutions that trade in similar investments or based on bid prices provided by independent third party pricing services.



The types of factors that the Board may take into account
when reviewing the fair value initially derived by the Investment Adviser and determining the fair value of the our debt investments
generally include, as appropriate, comparison to publicly traded securities, including such factors as yield, maturity and measures
of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio
company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company
does business and other relevant factors.



In valuing our unsecured consumer loans, the Investment Adviser
generally uses a discounted cash flow methodology based upon a set of assumptions. The primary assumptions used to value the unsecured
consumer loans include prepayment and default rates derived from historical performance, actual performance as compared to historical
projections and discount rate.





58






The types of factors that the Board may take into account when
reviewing the fair value initially derived by the Investment Adviser and determining the fair value of the our consumer loan investments
generally include, as appropriate, prepayment and default rates derived from historical performance, actual performance as compared
to historical projections and discount rates.



Our Board has retained several independent valuation firms to
review the valuation of each portfolio investment that does not have a readily available market quotation at least once during
each 12-month period. To the extent a security is reviewed in a particular quarter, it is reviewed and valued by only one service
provider. However, our Board does not intend to have de minimis investments of less than 0.5% of our total assets (up to an aggregate
of 10% of our total assets) independently reviewed. Our Board is ultimately and solely responsible for determining the fair value
of our assets using a documented valuation policy and consistently applied valuation process.



Due to the nature of our strategy, our portfolio includes relatively
illiquid investments that are privately held. Inputs into the determination of fair value of our portfolio investments require
significant management judgment or estimation. This means that our portfolio valuations are based on unobservable inputs and our
own assumptions about how market participants would price the asset or liability in question. Valuations of privately held investments
are inherently uncertain and they may fluctuate over short periods of time and may be based on estimates. The determination of
fair value by our Board may differ materially from the values that would have been used if a ready market for these investments
existed. Our net asset value could be materially affected if the determinations regarding the fair value of our investments were
materially higher or lower than the values that we ultimately realized upon the disposal of such investments.



The valuation process is conducted at the end of each fiscal
quarter, with a portion of our valuations of portfolio companies without market quotations subject to review by the independent
valuation firms each quarter. When an external event with respect to one of our portfolio companies, such as a purchase transaction,
public offering or subsequent equity sale, occurs, we expect to use the pricing indicated by the external event to corroborate
our valuation.



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



| | • | Our quarterly valuation process begins with each portfolio company or investment being initially valued by investment professionals of our Investment Adviser responsible for credit monitoring.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Preliminary valuation conclusions are then documented and discussed with our senior management and our Investment Adviser.
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | The valuation committee of the Board reviews these preliminary valuations.
| | - | --------------------------------------------------------------------------



| | • | At least once annually, the valuation for each portfolio investment that does not have a readily available quotation is reviewed by an independent valuation firm, subject to the de minimis exception above.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The Board discusses valuations and determines the fair value of each investment in our portfolio in good faith.
| | - | ---------------------------------------------------------------------------------------------------------------



Net assets could be materially affected if the determinations
regarding the fair value of the investments were materially higher or lower than the values that are ultimately realized upon the
disposal of such investments.



Investment Transactions and Related Investment Income and
Expense



We record our investment transactions on a trade date basis,
which is the date when we have determined that all material terms have been defined for the transactions. These transactions could
possibly settle on a subsequent date depending on the transaction type. All related revenue and expenses attributable to these
transactions are reflected on the consolidated statements of operations commencing on the trade date unless otherwise specified
by the transaction documents. Realized gains and losses on investment transactions are recorded using the specific identification
method.





59






We accrue interest income if we expect that ultimately we will
be able to collect it. Generally, when an interest default occurs on a loan in our portfolio, or if our management otherwise believes
that the issuer of the loan will not be able to service the loan and other obligations, we will place the loan on non-accrual status
and will cease recognizing interest income on that loan until all principal and interest is current through payment or until a
restructuring occurs, such that the interest income is deemed to be collectible. However, we remain contractually entitled to this
interest. We may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection.
Accrued interest is written off when it becomes probable that the interest will not be collected and the amount of uncollectible
interest can be reasonably estimated. For consumer loans, any loan which is 120 days past due is considered defaulted and 100%
of the principal is charged off with no expected recovery or sale of defaulted receivables. We had three investments  on
non-accrual status as of June 30, 2016 and four investments on non-accrual as of December 31, 2015.



Any original issue discounts, as well as any other purchase
discounts or premiums on debt investments, are accreted or amortized and included in interest income over the maturity periods
of the investments.



Interest Expense



Interest expense is recorded on an accrual basis and is adjusted
for amortization of deferred debt issuance costs.



Other Expenses



Certain expenses related to, but not limited to, rating fees,
due diligence, valuation expenses and independent collateral appraisals may arise when we make certain investments. These expenses
are recognized in the consolidated statement of operations within ratings fees and other expenses as they are incurred.



Loan Origination, Facility, Commitment and Amendment Fees



We may receive loan origination, prepayment, facility, commitment,
forbearance and amendment fees in addition to interest income during the life of the investment. We may receive origination fees
upon the origination of an investment.



Origination fees received by us are initially deferred and reduced
from the cost basis of the investment and subsequently accreted into interest income over the remaining stated term of the loan.



Upon the prepayment of a loan or debt security, any unamortized
loan origination fees are recorded as interest income. We record prepayment premiums on loans and debt securities as interest income
when we receive such amounts. Facility fees, sometimes referred to as asset management fees, are accrued as a percentage periodic
fee on the base amount (either the funded facility amount or the committed principal amount). Commitment fees are based upon the
undrawn portion committed by us and are accrued over the life of the loan.



Amendment and forbearance fees are paid in connection with loan
amendments and waivers and are recognized upon completion of the amendments or waivers, generally when such fees are receivable.
Any such fees are recorded and classified as other income and included in investment income on the consolidated statements of operations.
As these fees are paid and recognized in connection with specific loan amendments or forbearance, they are typically non-recurring
in nature.



Share Repurchase



Share repurchasetransactions are recorded on a trade
date basis, which is the date when management has determined that all material legal terms have been contractually defined for
the transactions. The aggregate cost of common stock repurchased, including any direct transaction costs, is recorded as a reduction
of the par and paid-in-capital in excess of par value accounts, respectively.





60






Distributions



Dividends and distributions to common stockholders are recorded
on the ex-dividend date. The amount to be paid out as a distribution is determined by our Board each quarter and is generally based
upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually, although we may
decide to retain such capital gains for investment.



We have adopted a dividend reinvestment plan that provides for
reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash
as provided below. As a result, if our Board declares a cash dividend or other distribution, then our stockholders who have not
‘opted out’ of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional
shares of our common stock, rather than receiving the cash distribution.



No action is required on the part of a registered stockholder
to have their cash dividend or other distribution reinvested in shares of our common stock. A registered stockholder may elect
to receive an entire distribution in cash by notifying American Stock Transfer & Trust Company, LLC, the plan administrator
and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than the record
date for distributions to stockholders. The plan administrator will set up an account for shares acquired through the plan for
each stockholder who has not elected to receive dividends or other distributions in cash and hold such shares in non-certificated
form. Upon request by a stockholder participating in the plan, received in writing not less than 10 days prior to the record date,
the plan administrator will, instead of crediting shares to the participant’s account, issue a certificate registered in
the participant’s name for the number of whole shares of our common stock and a check for any fractional share. The plan
administrator is authorized to deduct a $15.00 transaction fee plus a $0.10 per share brokerage commission from the proceeds of
the sale of any fractional share of common stock.



Those stockholders whose shares are held by a broker or other
financial intermediary may receive dividends and other distributions in cash by notifying their broker or other financial intermediary
of their election.



Income Tax



As a business development company, we elected to be treated
as a RIC under Subchapter M of the Code, and intend to qualify annually for such treatment.



We intend to comply with all RIC qualification provisions contained
in the Code including certain source-of-income and asset diversification requirements as well as the annual distribution requirements,
which require us to distribute to our stockholders an amount generally equal to at least 90% of “investment company taxable
income.” “Investment company taxable income” is generally defined to include net ordinary income plus the excess
of realized net short-term capital gains over realized net long-term capital losses. As a RIC, we do not have to pay corporate-level
U.S. federal income taxes on any net ordinary income or capital gains that we distribute to our stockholders in a timely manner.
However, we are subject to U.S. federal income taxes at regular corporate tax rates on any net ordinary income or net capital gain
not distributed to our stockholders assuming we meet the annual distribution requirement.



Depending on the level of taxable income earned in a
tax year, we may choose to retain taxable income in excess of current year dividend distributions, and would distribute
such taxable income in the next tax year. We would then pay a 4% excise tax on such taxable income, as required. To the
extent that we determine that our estimated current year annual taxable income, determined on a calendar basis, could
exceed estimated current calendar year dividend distributions, we accrue excise tax, if any, on estimated excess taxable
income as taxable income is earned. For the three and six months ended June 30, 2016, $50,000 and $0.1 million was recorded
for U.S. federal excise tax, respectively. For the three  months ended June 30, 2015, the Company reversed previously
accrued U.S. federal excise tax in the amount of $(42,957).





61






Item 3: Quantitative and Qualitative Disclosures About Market
Risk



We are subject to financial market risks,
including changes in interest rates. During the period covered by our financial statements, the majority of the loans in our
portfolio had floating interest rates, and we expect that our loans in the future will also have floating interest rates.
These loans usually have floating interest rates based on  the London Interbank Offer Rate, or LIBOR, and typically have
interest rate re-set provisions that adjust applicable LIBOR under such loans to current market rates on a regular basis. In
addition, the CLO has a floating interest rate provision based on a cost of funds that approximates LIBOR and we expect that
any other credit facilities into which we enter in the future may have floating interest rate provisions.



Assuming that the interim and unaudited consolidated statement
of financial condition as of June 30, 2016 were to remain constant and that we took no actions to alter our existing interest rate
sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates.





|                         |  | Increase        |       |                     |  | Net increase/    
|------------------------ |  | --------------- | ----- | ------------------- |  | -----------------
|                         |  | in              |       | (Decrease)/increase |  | (decrease) in    
|Change in interest rates |  | interest income |       | in interest expense |  | investment income
|($ in thousands)         |  |                 |       |                     |  |                  
|Down 25 basis points     |  | $               | (44   | )                   |  | $                
|Up 50 basis points       |  |                 | 745   |                     |  |                  
|Up 100 basis points      |  |                 | 2,487 |                     |  |                  
|Up 200 basis points      |  |                 | 6,163 |                     |  |                  
|Up 300 basis points      |  |                 | 9,844 |                     |  |                  









Although management believes that this analysis is indicative
of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit markets, the size, credit quality
or composition of the assets in our portfolio and other business developments, including indebtedness under the CLO or other borrowings,
that could affect net increase in net assets resulting from operations, or net income. Accordingly, we cannot assure you that actual
results would not differ materially from the statement above.



We may in the future hedge against currency and interest rate
fluctuations by using standard hedging instruments such as futures, forward contracts, currency options and interest rate swaps,
caps, collars and floors, and the collateral manager may engage in similar hedging activities with respect to the obligations of
the CLO, to the extent permitted under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against
adverse changes in currency exchange and interest rates, they may also limit our ability to participate in the benefits of lower
interest rates with respect to the investments in our portfolio with fixed interest rates. We, our Investment Adviser and the collateral
manager have not hedged any of the obligations of the CLO.



Item 4: Controls and Procedures



As of the end of the period covered by this report, we, including
our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on our evaluation, our management, including
the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective in
timely alerting management, including the chief executive officer and chief financial officer, of material information about us
required to be included in our periodic SEC filings. However, in evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and operated, are based upon certain assumptions about
the likelihood of future events and can provide only reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
There has not been any change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange
Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.





62






Part II — Other Information



Item 1: Legal Proceedings



We, the Investment Adviser, the Administrator and our wholly-owned
subsidiaries are not currently subject to any material legal proceedings.



Item 1A: Risk Factors



In addition to other information set forth in this report, you
should carefully consider the “Risk Factors” discussed in our Annual Report on Form 10-K filed with the SEC on March
2, 2016, which could materially affect our business, financial condition and/or operating results. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition
and/or operating results.



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



The following table provides information
regarding our purchases of our common stock for each month in the three month period ended June 30, 2016:





|Period                                               |  | Total Number of Shares Purchased |         | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) |       | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
|---------------------------------------------------- |  | -------------------------------- | ------- | ---------------------------- |  | ----------------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------
|($ in thousands, except share and per share amounts) |  |                                  |         |                              |  |                                                                                     |       |                                                                                         
|As of March 31, 2016                                 |  |                                  |         |                              |  |                                                                                     |       |                                                                                         
|April 1, 2016 through April 30, 2016                 |  |                                  | 41,222  |                              |  | $                                                                                   | 10.59 |                                                                                         
|May 1, 2016 through May 31, 2016                     |  |                                  | 37,123  |                              |  |                                                                                     | 10.34 |                                                                                         
|June 1, 2016 through June 30, 2016                   |  |                                  | 65,077  |                              |  |                                                                                     | 9.89  |                                                                                         
|                                                     |  |                                  | 143,422 |                              |  | $                                                                                   | 10.20 |                                                                                         



__________

| | (1) | On October 5, 2015, we announced
    a share repurchase plan which allows us to repurchase up to $10.0 million of  our outstanding common stock. Unless extended
    by the Board, the repurchase program will expire on the earlier of October 5, 2016 and the repurchase of $10.0 million of
    common stock.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 3: Defaults Upon Senior Securities



None.



Item 4: Mine Safety Disclosures



Not applicable.



Item 5: Other Information



None.



Item 6: Exhibits



EXHIBIT INDEX



|Number |  | Description                                                                                                                                              
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1*  |  | Third Amended and Restated Investment Advisory Agreement dated as of August 5, 2016, by and
    between the Registrant and Garrison Capital Advisers LLC.
|31.1*  |  | Certifications by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
|31.2*  |  | Certifications by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
|32.1*  |  | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       
|32.2*  |  | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       
|99.1*  |  | GLC Trust 2013-2 Consumer Loan Pool Schedule of Investments.                                                                                             



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





63






SIGNATURES



Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                      |  | Garrison Capital Inc.                                                                                                               
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|                      |  |                                                                                                                                     
|Dated: August 9, 2016 |  | By /s/ Joseph Tansey
        
        Joseph Tansey
        Chief Executive Officer
        (Principal Executive Officer)           
|                      |  |                                                                                                                                     
|Dated: August 9, 2016 |  | By /s/ Brian Chase
        
        Brian Chase
        Chief Financial Officer
        (Principal Financial and Accounting Officer)







64

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