UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-Q/A

(Amendment No. 1)





|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------
|  |                                                                                        
|  | For the quarterly period ended September 30, 2014                                      



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------
|  |                                                                                         
|  | For the transition period from             to                                           



Commission File No. 0-54615



VII Peaks Co-Optivist Income BDC II, Inc.

(Exact name of Registrant as specified in
its charter)



|Maryland                        | 45-2918121            
|------------------------------- | ----------------------
|(State or other jurisdiction of | (I.R.S. Employer      
|incorporation or organization)  | Identification Number)



4 Orinda Way, Suite 125-A

Orinda, CA 94563

(Address of principal executive offices)



(855) 889-1778

(Registrant’s telephone number, including
area code)



Not applicable

(Former Name, Former Address and Former Fiscal
Year, if Changed Since Last Report)



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: YesxNo ̈



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 the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):



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



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ̈Nox



The number of shares of
the Registrant’s common stock, par value $0.001 per share, outstanding as of November 12, 2014 was 5,169,473.











Explanatory Note



This Amendment No. 1 on Form 10-Q/A to the Quarterly
Report on Form 10-Q of VII Peaks Co-Optivist Income BDC II, Inc. (the “Fund”) for the nine months ended September 30,
2014 (the “Quarterly Period”), as originally filed with the Securities and Exchange Commission (the “SEC”)
on November 13, 2014 (the “Original Report”), is being filed to restate the Fund’s previously issued financial
statements for the Quarterly Period and to revise related disclosures, including “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” for the Quarterly Period.



As more fully described in Note 3 to the accompanying
financial statements, the restatement corrects an error relating to offering costs that were paid by the Fund but which should
have been borne by the Fund manager and reimbursed in accordance with the limitations imposed by the agreement between the Fund
and the Fund manager, which error primarily resulted from an incorrect interpretation of the agreements between the Fund and the
Fund manager. At the same time, the Fund reclassified certain other operating expenses to conform with the Fund’s current
method of classifying operating expenses to facilitate comparability of financial statements among different periods. For the convenience
of the reader, this Form 10-Q/A otherwise sets forth the Original Report in its entirety. In order to preserve the nature and character
of the disclosures set forth in the Original Report, this Form 10-Q/A speaks as of the date of the filing of the Original Report,
November 13, 2014, and the disclosures contained in this Form 10-Q/A have not been updated to reflect events occurring subsequent
to that date, other than those associated with the restatement.











VII PEAKS CO-OPTIVIST INCOME BDC II, INC.

FORM 10-Q/A FOR THE QUARTER ENDED SEPTEMBER
30, 2014



TABLE OF CONTENTS



|           |                                                                                                       | Page
|---------- | ----------------------------------------------------------------------------------------------------- | ----
|           |                                                                                                       |     
|PART I.    | FINANCIAL INFORMATION                                                                                 | 3   
|           |                                                                                                       |     
|Item 1.    | Financial Statements                                                                                  | 3   
|           |                                                                                                       |     
|           | Statements of Assets and Liabilities as of September 30, 2014 (unaudited) and December 31, 2013       | 3   
|           |                                                                                                       |     
|           | Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (unaudited)  | 4   
|           |                                                                                                       |     
|           | Statements of Changes in Net Assets for the nine months ended September 30, 2014 and 2013 (unaudited) | 5   
|           |                                                                                                       |     
|           | Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)            | 6   
|           |                                                                                                       |     
|           | Schedule of Investments as of September 30, 2014 (unaudited)                                          | 7   
|           |                                                                                                       |     
|           | Schedule of Investments as of December 31, 2013                                                       | 8   
|           |                                                                                                       |     
|           | Notes to Financial Statements (unaudited)                                                             | 9   
|           |                                                                                                       |     
|Item 2.    | Management’s Discussion and Analysis of Financial Condition and Results of Operations                 | 21  
|           |                                                                                                       |     
|Item 3.    | Quantitative and Qualitative Disclosures About Market Risk                                            | 31  
|           |                                                                                                       |     
|Item 4.    | Controls and Procedures                                                                               | 32  
|           |                                                                                                       |     
|PART II.   | OTHER INFORMATION                                                                                     | 33  
|           |                                                                                                       |     
|Item 1.    | Legal Proceedings                                                                                     | 33  
|           |                                                                                                       |     
|Item 1A.   | Risk Factors                                                                                          | 33  
|           |                                                                                                       |     
|Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds                                           | 33  
|           |                                                                                                       |     
|Item 3.    | Defaults upon Senior Securities                                                                       | 33  
|           |                                                                                                       |     
|Item 4.    | Mine Safety Disclosures                                                                               | 33  
|           |                                                                                                       |     
|Item 5.    | Other Information                                                                                     | 33  
|           |                                                                                                       |     
|Item 6.    | Exhibits                                                                                              | 33  
|           |                                                                                                      
|Signatures | 34                                                                                                   











PART I – FINANCIAL INFORMATION



Item 1. Financial Statements



VII PEAKS CO-OPTIVIST INCOME BDC II, INC.



STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except share and per share
data)

(Unaudited)



|                                                                                                                                      |  | As of             |       
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------
|                                                                                                                                      |  | September 30,2014 |       
|                                                                                                                                      |  | (Restated)        |       
|ASSETS                                                                                                                                |  |                   |       
|Investments, at fair value (amortized cost of $37,170 and $23,769, respectively)                                                      |  | $                 | 32,899
|Investments, money market at fair value (cost of $4,561 and $1,644, respectively)                                                     |  |                   | 4,561 
|Total investments, at fair value                                                                                                      |  | $                 | 37,460
|Interest receivable                                                                                                                   |  |                   | 1,117 
|Prepaid expenses                                                                                                                      |  |                   | 28    
|Due from related party                                                                                                                |  |                   | 217   
|Receivable for common stock purchased                                                                                                 |  |                   | 676   
|Total assets                                                                                                                          |  | $                 | 39,498
|                                                                                                                                      |  |                   |       
|LIABILITIES                                                                                                                           |  |                   |       
|Payable for unsettled trades                                                                                                          |  | $                 | 601   
|Management fees payable                                                                                                               |  |                   | -     
|Accounts payable and accrued liabilities                                                                                              |  |                   | 406   
|Stockholder distributions payable                                                                                                     |  |                   | 149   
|Total liabilities                                                                                                                     |  | $                 | 1,156 
|                                                                                                                                      |  |                   |       
|NET ASSETS                                                                                                                            |  |                   |       
|Preferred stock, par value, $.001 per share, 50,000,000 authorized, none issued and outstanding                                       |  | $                 | -     
|Common stock, par value, $.001 per share, 200,000,000 authorized; 4,909,423 and 3,151,376 shares issued and outstanding, respectively |  |                   | 5     
|Paid-in capital in excess of par value                                                                                                |  |                   | 45,339
|Treasury stock at cost, 73,606 and 548 shares, respectively                                                                           |  |                   | (716  
|Accumulated distribution in excess of net investment income and net realized gain on investments                                      |  |                   | (2,015
|Net unrealized depreciation on investments                                                                                            |  |                   | (4,271
|Total net assets                                                                                                                      |  |                   | 38,342
|Total liabilities and net assets                                                                                                      |  | $                 | 39,498
|                                                                                                                                      |  |                   |       
|Net asset value per share                                                                                                             |  | $                 | 7.81  



(1) Derived from the Company’s audited Financial Statements
as of December 31, 2013.



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



3







VII PEAKS CO-OPTIVIST INCOME BDC II, INC.



STATEMENTS OF OPERATIONS

(in thousands, except share and per share
data)

(Unaudited)



|                                                                |  | For theThree MonthsEndedSeptember30, |           |   | For theThree MonthsEnded September30, |   |           | For theNine MonthsEnded September30, |  |   | For theNine MonthsEnded September30, |  
|--------------------------------------------------------------- |  | ------------------------------------ | --------- | - | ------------------------------------- | - | --------- | ------------------------------------ |  | - | ------------------------------------ | -
|                                                                |  | 2014                                 |           |   | 2013                                  |   |           | 2014                                 |  |   | 2013                                 |  
|                                                                |  | (Restated)                           |           |   |                                       |   |           | (Restated)                           |  |   |                                      |  
|Investment income:                                              |  |                                      |           |   |                                       |   |           |                                      |  |   |                                      |  
|Interest from investments                                       |  | $                                    | 744       |   |                                       | $ | 456       |                                      |  | $ | 2,302                                |  
|Other income                                                    |  |                                      | -         |   |                                       |   | -         |                                      |  |   | 103                                  |  
|Total investment income                                         |  |                                      | 744       |   |                                       |   | 456       |                                      |  |   | 2,405                                |  
|                                                                |  |                                      |           |   |                                       |   |           |                                      |  |   |                                      |  
|Operating expenses:                                             |  |                                      |           |   |                                       |   |           |                                      |  |   |                                      |  
|Professional fees                                               |  |                                      | 67        |   |                                       |   | 111       |                                      |  |   | 203                                  |  
|Directors fees                                                  |  |                                      | 10        |   |                                       |   | 12        |                                      |  |   | 37                                   |  
|Insurance                                                       |  |                                      | 24        |   |                                       |   | 22        |                                      |  |   | 71                                   |  
|Management fees                                                 |  |                                      | 193       |   |                                       |   | 128       |                                      |  |   | 528                                  |  
|Incentive fees                                                  |  |                                      | -         |   |                                       |   | 4         |                                      |  |   | -                                    |  
|Administrative Services                                         |  |                                      | 30        |   |                                       |   | 46        |                                      |  |   | 54                                   |  
|General and administrative                                      |  |                                      | 158       |   |                                       |   | 55        |                                      |  |   | 574                                  |  
|Offering expense                                                |  |                                      | 127       |   |                                       |   | 124       |                                      |  |   | 263                                  |  
|Operating expenses before expense reimbursements                |  |                                      | 609       |   |                                       |   | 502       |                                      |  |   | 1,730                                |  
|Expense reimbursement                                           |  |                                      | -         |   |                                       |   | (201      | )                                    |  |   | -                                    |  
|Total operating expenses net of expense reimbursements          |  |                                      | 609       |   |                                       |   | 301       |                                      |  |   | 1,730                                |  
|                                                                |  |                                      |           |   |                                       |   |           |                                      |  |   |                                      |  
|Net investment income                                           |  |                                      | 135       |   |                                       |   | 155       |                                      |  |   | 675                                  |  
|                                                                |  |                                      |           |   |                                       |   |           |                                      |  |   |                                      |  
|Realized and unrealized gain (loss) on investments:             |  |                                      |           |   |                                       |   |           |                                      |  |   |                                      |  
|Net realized gain from investments                              |  |                                      | 28        |   |                                       |   | 47        |                                      |  |   | 114                                  |  
|Net unrealized appreciation (depreciation) on investments       |  |                                      | (2,438    | ) |                                       |   | 135       |                                      |  |   | (3,656                               | )
|Net realized and unrealized gain (loss) on investments          |  |                                      | (2,410    | ) |                                       |   | 182       |                                      |  |   | (3,542                               | )
|                                                                |  |                                      |           |   |                                       |   |           |                                      |  |   |                                      |  
|Net increase (decrease) in net assets resulting from operations |  | $                                    | (2,275    | ) |                                       | $ | 337       |                                      |  | $ | (2,867                               | )
|                                                                |  |                                      |           |   |                                       |   |           |                                      |  |   |                                      |  
|Per share information - basic and diluted:                      |  |                                      |           |   |                                       |   |           |                                      |  |   |                                      |  
|Net investment income                                           |  | $                                    | 0.03      |   |                                       | $ | 0.06      |                                      |  | $ | 0.17                                 |  
|Net increase (decrease) in net assets resulting from operations |  | $                                    | (0.52     | ) |                                       | $ | 0.14      |                                      |  | $ | (0.72                                | )
|Weighted average common shares outstanding                      |  |                                      | 4,365,342 |   |                                       |   | 2,443,182 |                                      |  |   | 3,962,809                            |  



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



4







VII PEAKS CO-OPTIVIST INCOME BDC II, INC.



STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except share and per share
data)

(Unaudited)



|                                                                                                 |  | For the Nine MonthsEnded September30, 2014 |           |   | For the Nine MonthsEnded September30, 2013 |  
|------------------------------------------------------------------------------------------------ |  | ------------------------------------------ | --------- | - | ------------------------------------------ | -
|                                                                                                 |  | (Restated)                                 |           |   |                                            |  
|Operations:                                                                                      |  |                                            |           |   |                                            |  
|Net investment income                                                                            |  | $                                          | 675       |   |                                            | $
|Net realized gain from investments                                                               |  |                                            | 114       |   |                                            |  
|Net unrealized appreciation (depreciation) on investments                                        |  |                                            | (3,656    | ) |                                            |  
|Net increase (decrease) in net assets from operations                                            |  |                                            | (2,867    | ) |                                            |  
|Stockholder distributions:                                                                       |  |                                            |           |   |                                            |  
|Distributions from net investment income                                                         |  |                                            | (675      | ) |                                            |  
|Distributions from net realized gain on investments                                              |  |                                            | (114      | ) |                                            |  
|Distributions from paid in capital                                                               |  |                                            | (1,405    | ) |                                            |  
|Net decrease in net assets from stockholder distributions                                        |  |                                            | (2,194    | ) |                                            |  
|Capital share transactions:                                                                      |  |                                            |           |   |                                            |  
|Issuance of common stock, net of issuance costs                                                  |  |                                            | 15,155    |   |                                            |  
|Reinvestment of stockholder distributions                                                        |  |                                            | 783       |   |                                            |  
|Total investment contributions transferred in-kind                                               |  |                                            | 757       |   |                                            |  
|Treasury capital/redemptions                                                                     |  |                                            | (716      | ) |                                            |  
|Net increase in net assets from capital share transactions                                       |  |                                            | 15,979    |   |                                            |  
|                                                                                                 |  |                                            |           |   |                                            |  
|Total increase in net assets                                                                     |  |                                            | 10,918    |   |                                            |  
|Net assets at beginning of period                                                                |  |                                            | 27,424    |   |                                            |  
|Net assets at end of period                                                                      |  | $                                          | 38,342    |   |                                            | $
|                                                                                                 |  |                                            |           |   |                                            |  
|Net asset value per common share                                                                 |  | $                                          | 7.81      |   |                                            | $
|Common shares outstanding at end of period                                                       |  |                                            | 4,909,423 |   |                                            |  
|                                                                                                 |  |                                            |           |   |                                            |  
|Accumulated distribution in excess of net investment income and net realized gain on investments |  | $                                          | (2,015    | ) |                                            | $



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



5







VII PEAKS CO-OPTIVIST INCOME BDC II, INC.



STATEMENTS OF CASH FLOWS

(in thousands, except share and per share
data)

(Unaudited)



|                                                                                                                         |  | For the Nine MonthsEnded September30, 2014 |         |   | For the Nine MonthsEnded September30, 2013 |  
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------ | ------- | - | ------------------------------------------ | -
|                                                                                                                         |  | (Restated)                                 |         |   |                                            |  
|Operating activities:                                                                                                    |  |                                            |         |   |                                            |  
|Net increase (decrease) in net assets from operations                                                                    |  | $                                          | (2,867  | ) |                                            | $
|Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities: |  |                                            |         |   |                                            |  
|Paid in-kind interest income                                                                                             |  |                                            | (15     | ) |                                            |  
|Net accretion of discount on investments                                                                                 |  |                                            | (61     | ) |                                            |  
|Repayments of investments                                                                                                |  |                                            | 10,775  |   |                                            |  
|Purchase of investments                                                                                                  |  |                                            | (23,250 | ) |                                            |  
|Repayments of investments - money market                                                                                 |  |                                            | 25,048  |   |                                            |  
|Purchase of investments - money market                                                                                   |  |                                            | (27,963 | ) |                                            |  
|Net realized gain from investments                                                                                       |  |                                            | (114    | ) |                                            |  
|Net unrealized depreciation on investments                                                                               |  |                                            | 3,656   |   |                                            |  
|(Increase) decrease in operating assets:                                                                                 |  |                                            |         |   |                                            |  
|Interest receivable                                                                                                      |  |                                            | (538    | ) |                                            |  
|Prepaid expenses                                                                                                         |  |                                            | (20     | ) |                                            |  
|Due from related party                                                                                                   |  |                                            | 1,219   |   |                                            |  
|Receivable for common stock purchased                                                                                    |  |                                            | 298     |   |                                            |  
|Increase (decrease) in operating liabilities:                                                                            |  |                                            |         |   |                                            |  
|Payable for unsettled trades                                                                                             |  |                                            | 497     |   |                                            |  
|Management fees payable                                                                                                  |  |                                            | (8      | ) |                                            |  
|Accounts payable and accrued liabilities                                                                                 |  |                                            | 277     |   |                                            |  
|Net cash used in operating activities                                                                                    |  |                                            | (13,066 | ) |                                            |  
|                                                                                                                         |  |                                            |         |   |                                            |  
|Financing activities:                                                                                                    |  |                                            |         |   |                                            |  
|Proceeds from issuance of shares of common stock, net                                                                    |  |                                            | 15,155  |   |                                            |  
|Redemptions of common stock                                                                                              |  |                                            | 7       |   |                                            |  
|Stockholder distributions                                                                                                |  |                                            | (1,380  | ) |                                            |  
|Treasury stock                                                                                                           |  |                                            | (716    | ) |                                            |  
|Net cash provided by financing activities                                                                                |  |                                            | 13,066  |   |                                            |  
|                                                                                                                         |  |                                            |         |   |                                            |  
|Net increase in cash and cash equivalents                                                                                |  |                                            | -       |   |                                            |  
|Cash and cash equivalents, beginning of period                                                                           |  |                                            | -       |   |                                            |  
|Cash and cash equivalents, end of period                                                                                 |  | $                                          | -       |   |                                            | $
|                                                                                                                         |  |                                            |         |   |                                            |  
|Supplemental non-cash information:                                                                                       |  |                                            |         |   |                                            |  
|DRIP distribution payable                                                                                                |  | $                                          | 56      |   |                                            | $
|Cash distribution payable                                                                                                |  | $                                          | 93      |   |                                            | $
|DRIP distribution paid                                                                                                   |  | $                                          | 766     |   |                                            | $



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



6







VII PEAKS CO-OPTIVIST INCOME BDC II, INC.



SCHEDULE OF INVESTMENTS

(dollars in thousands)

September 30, 2014

(Unaudited)



|Portfolio Company (a)                        |  | Industry                                  |  | Investment CouponRate, Maturity Date     |        | Principal |       |   | AmortizedCost |   |       | Fair Value |        |   | % ofNet Assets | 
|-------------------------------------------- |  | ----------------------------------------- |  | ---------------------------------------- | ------ | --------- | ----- | - | ------------- | - | ----- | ---------- | ------ | - | -------------- | 
|Senior Secured First Lien Debt – 19.1% (b)   |  |                                           |  |                                          |        |           |       |   |               |   |       |            |        |   |                | 
|Accuride Corp.                               |  | Consumer Goods: Durable                   |  | 9.50%, 8/1/2018                          |        | $         | 825   |   |               | $ | 835   |            |        | $ | 860            | 
|American Media, Inc.                         |  | Media: Advertising, Printing & Publishing |  | 11.50%, 12/15/2017                       |        |           | 995   |   |               |   | 1,046 |            |        |   | 1,050          | 
|APX Group, Inc.                              |  | Services: Consumer                        |  | 6.375%, 12/1/2019                        |        |           | 825   |   |               |   | 825   |            |        |   | 798            | 
|Caesars Entertainment Operating Co., Inc.    |  | Hotel, Gaming & Leisure                   |  | 11.25%, 6/1/2017                         |        |           | 860   |   |               |   | 757   |            |        |   | 668            | 
|Cambium Learning Group, Inc.                 |  | Services: Consumer                        |  | 9.75%, 2/15/2017                         |        |           | 1,375 |   |               |   | 1,394 |            |        |   | 1,334          | 
|Endeavour International Corp. (e)            |  | Energy: Oil & Gas                         |  | 12.00%, 3/1/2018                         |        |           | 525   |   |               |   | 551   |            |        |   | 375            | 
|EuraMax International, Inc.                  |  | Metals & Mining                           |  | 9.50%, 4/1/2016                          |        |           | 1,350 |   |               |   | 1,346 |            |        |   | 1,316          | 
|Ryerson Inc./Joseph T Ryerson & Son, Inc.    |  | Metals & Mining                           |  | 9.00%, 10/15/2017                        |        |           | 490   |   |               |   | 510   |            |        |   | 517            | 
|Toys R Us Property Co II LLC                 |  | Retail                                    |  | 8.50%, 12/1/2017                         |        |           | 425   |   |               |   | 435   |            |        |   | 428            | 
|Sub Total Senior Secured First Lien Debt     |  |                                           |  |                                          | 7,670  |           |       |   | 7,699         |   |       |            | 7,346  |   |                | 
|                                             |  |                                           |  |                                          |        |           |       |   |               |   |       |            |        |   |                | 
|Senior Secured Second Lien  Debt - 12.5% (b) |  |                                           |  |                                          |        |           |       |   |               |   |       |            |        |   |                | 
|Aspect Software, Inc.                        |  | Telecommunications                        |  | 10.63%, 5/15/2017                        |        | $         | 1,302 |   |               | $ | 1,324 |            |        | $ | 1,292          | 
|Bon-ton Department Stores, Inc.              |  | Retail                                    |  | 10.63%, 7/15/2017                        |        |           | 40    |   |               |   | 41    |            |        |   | 40             | 
|Claire's Stores, Inc.                        |  | Retail                                    |  | 8.88%, 3/15/2019                         |        |           | 825   |   |               |   | 804   |            |        |   | 685            | 
|Endeavour International Corp. (e)            |  | Energy: Oil & Gas                         |  | 12.00%, 6/1/2018                         |        |           | 725   |   |               |   | 708   |            |        |   | 181            | 
|Logan's Roadhouse, Inc.                      |  | Beverage, Food & Tobacco                  |  | 10.75%, 10/15/2017                       |        |           | 770   |   |               |   | 735   |            |        |   | 577            | 
|Radiation Therapy Services, Inc.             |  | Healthcare & Pharmaceuticals              |  | 8.88%, 1/15/2017                         |        |           | 1,285 |   |               |   | 1,276 |            |        |   | 1,324          | 
|Saratoga Resources, Inc.                     |  | Energy: Oil & Gas                         |  | 12.50%, 7/1/2016                         |        |           | 885   |   |               |   | 899   |            |        |   | 708            | 
|Sub Total Senior Secured Second Lien Debt    |  |                                           |  |                                          | 5,832  |           |       |   | 5,787         |   |       |            | 4,807  |   |                | 
|                                             |  |                                           |  |                                          |        |           |       |   |               |   |       |            |        |   |                | 
|Senior Unsecured Debt – 40.7% (b)            |  |                                           |  |                                          |        |           |       |   |               |   |       |            |        |   |                | 
|APX Group, Inc.                              |  | Services: Consumer                        |  | 8.75%, 12/1/2020                         |        | $         | 575   |   |               | $ | 552   |            |        | $ | 523            | 
|Armored Autogroup, Inc.                      |  | Consumer Goods: Durable                   |  | 9.25%, 11/1/2018                         |        |           | 1,250 |   |               |   | 1,247 |            |        |   | 1,281          | 
|Caesar's Entertainment Corp.                 |  | Hotel, Gaming & Leisure                   |  | 10.75%, 2/1/2016                         |        |           | 495   |   |               |   | 470   |            |        |   | 173            | 
|Cenveo Corp.                                 |  | Services: Business                        |  | 11.50%, 5/15/2017                        |        |           | 545   |   |               |   | 530   |            |        |   | 549            | 
|Clear Channel Communications                 |  | Media: Broadcasting & Subscription        |  | 10.00%, 1/15/2018                        |        |           | 1,400 |   |               |   | 1,330 |            |        |   | 1,173          | 
|Colt Defense LLC                             |  | Aerospace and Defense                     |  | 8.75%, 11/15/2017                        |        |           | 1,253 |   |               |   | 1,060 |            |        |   | 735            | 
|DynCorp International Inc.                   |  | Aerospace and Defense                     |  | 10.38%, 7/1/2017                         |        |           | 1,135 |   |               |   | 1,149 |            |        |   | 979            | 
|Education Management LLC                     |  | Services: Consumer                        |  | 15.00%, 7/1/2018 (d)                     |        |           | 870   |   |               |   | 889   |            |        |   | 870            | 
|Gentiva Health Services, Inc.                |  | Healthcare & Pharmaceuticals              |  | 11.50%, 9/1/2018                         |        |           | 925   |   |               |   | 969   |            |        |   | 983            | 
|Gymboree Corp.                               |  | Retail                                    |  | 9.13%, 12/1/2018                         |        |           | 810   |   |               |   | 762   |            |        |   | 227            | 
|Hutchinson Technology, Inc.                  |  | High Tech Industries                      |  | 8.50%, 1/15/2026, puttable on 01/15/2015 |        |           | 858   |   |               |   | 818   |            |        |   | 826            | 
|NII Capital Corp. (e)                        |  | Telecommunications                        |  | 10.00%, 8/15/2016                        |        |           | 960   |   |               |   | 921   |            |        |   | 274            | 
|Nuverra Environmental Solutions, Inc.        |  | Environmental Industries                  |  | 9.88%, 4/15/2018                         |        |           | 1,325 |   |               |   | 1,364 |            |        |   | 1,329          | 
|Seitel, Inc.                                 |  | Energy: Oil & Gas                         |  | 9.50%, 4/15/2019                         |        |           | 825   |   |               |   | 845   |            |        |   | 887            | 
|Sitel LLC / Sitel Finance Corp               |  | Media: Advertising, Printing & Publishing |  | 11.50%, 4/1/2018                         |        |           | 1,300 |   |               |   | 1,289 |            |        |   | 1,235          | 
|Suntech Power Holdings Company, Ltd. (c)     |  | Environmental Industries                  |  | 3.00%, 5/15/13                           |        |           | 100   |   |               |   | 108   |            |        |   | 7              | 
|Toys R Us Inc.                               |  | Retail                                    |  | 10.38%, 8/15/2017                        |        |           | 860   |   |               |   | 821   |            |        |   | 703            | 
|Travelport LLC                               |  | Services: Consumer                        |  | 11.38% cash; 2% PIK, 3/1/2016            |        |           | 344   |   |               |   | 321   |            |        |   | 344            | 
|UCI International Inc                        |  | Automobile                                |  | 8.63%, 2/15/2019                         |        |           | 1,400 |   |               |   | 1,356 |            |        |   | 1,351          | 
|Visant Corp.                                 |  | Media: Advertising, Printing & Publishing |  | 10.00%, 10/1/2017                        |        |           | 1,275 |   |               |   | 1,237 |            |        |   | 1,138          | 
|Sub Total Senior Unsecured Debt              |  |                                           |  |                                          | 18,505 |           |       |   | 18,038        |   |       |            | 15,587 |   |                | 
|                                             |  |                                           |  |                                          |        |           |       |   |               |   |       |            |        |   |                | 
|Senior Subordinated Debt -13.5% (b)          |  |                                           |  |                                          |        |           |       |   |               |   |       |            |        |   |                | 
|Affinion Group, Inc.                         |  | Media: Advertising, Printing & Publishing |  | 13.50%, 8/15/2018                        |        | $         | 816   |   |               | $ | 702   |            |        | $ | 759            | 
|Central Garden and Pet Co.                   |  | Retail                                    |  | 8.25%, 3/1/2018                          |        |           | 1,400 |   |               |   | 1,443 |            |        |   | 1,424          | 
|Claires Stores, Inc                          |  | Retail                                    |  | 10.50%, 6/1/2017                         |        |           | 715   |   |               |   | 711   |            |        |   | 687            | 
|DJO Finance, LLC.                            |  | Healthcare & Pharmaceuticals              |  | 9.75%, 10/15/2017                        |        |           | 1,265 |   |               |   | 1,316 |            |        |   | 1,284          | 
|QuickSilver Resources, Inc.                  |  | Energy: Oil & Gas                         |  | 7.13%, 4/1/2016                          |        |           | 890   |   |               |   | 858   |            |        |   | 360            | 
|Travelport LLC                               |  | Services: Consumer                        |  | 11.88%, 9/1/2016                         |        |           | 645   |   |               |   | 616   |            |        |   | 645            | 
|Sub Total Senior Subordinated Debt           |  |                                           |  |                                          | 5,731  |           |       |   | 5,646         |   |       |            | 5,159  |   |                | 
|                                             |  |                                           |  |                                          |        |           |       |   |               |   |       |            |        |   |                | 
|Investments - Money Market -11.9%            |  |                                           |  |                                          |        |           |       |   |               |   |       |            |        |   |                | 
|Investments - U.S. Bank Money Market         |  |                                           |  | 0.03%                                    |        | $         | 4,561 |   |               |   | 4,561 |            |        |   | 4,561          | 
|Sub Total Investments - Money Market         |  |                                           |  |                                          |        |           |       |   | 4,561         |   |       |            | 4,561  |   |                | 
|                                             |  |                                           |  |                                          |        |           |       |   |               |   |       |            |        |   |                | 
|TOTAL INVESTMENTS
    - 97.7% (b)            |  |                                           |  |                                          |        |           |       | $ | 41,731        |   |       | $          | 37,460 |   |                | 





(a) All of our investments are issued by eligible U.S. portfolio
companies, as defined in the Investment Company Act of 1940, except for Caesar's Entertainment Corp. and Suntech Power Holdings
Company, Ltd. Non-qualifying assets represent 2.3% of the Company's portfolio at fair value. As a BDC, the Company can only invest
30% of its portfolio in non-qualifying assets.



(b) Percentages are based on net assets of $38,342 as of September
30, 2014.



(c) Non-U.S. company. The principal place of business for Suntech
Power Holdings Company, Ltd. Is China. Non-income producing as of September 30, 2014.



(d) The notes pay cash interest at the rate of 15% per annum. For
any interest period after March 30, 2014, the notes pay additional PIK interest in the form of additional notes. PIK interest on
the notes accrues at the rate of (i) 1.0% per annum for the period from March 30, 2014 through and including March 30, 2015, (ii)
2.0% per annum for the period from March 30, 2015 through and including March 30, 2016, (iii) 3.0% per annum for the period from
March 30, 2016 through and including March 30, 2017 and (iv) 4.0% per annum for the period from March 30, 2017 through and including
July 1, 2018.



(e) Non-income producing as of September 30, 2014.



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





7







VII PEAKS CO-OPTIVIST INCOME BDC II, INC.



SCHEDULE OF INVESTMENTS

(dollars in thousands)

December 31, 2013



|Portfolio
    Company (a)                    |  | Industry                                  |       | Investment
    Coupon Rate,Maturity Date |  | Principal |        |  | Amortized
    
Cost |   |        | Fair
    Value |  |   | %
    ofNet Assets |  
|-------------------------------------------- |  | ----------------------------------------- | ----- | ---------------------------------------- |  | --------- | ------ |  | ------------------- | - | ------ | -------------- |  | - | ------------------ | -
|                                             |  |                                           |       |                                          |  |           |        |  |                     |   |        |                |  |   |                    |  
|Senior Secured First Lien Debt – 16.4% (b)   |  |                                           |       |                                          |  |           |        |  |                     |   |        |                |  |   |                    |  
|Alion Science and Technology Corp.           |  | Aerospace and Defense                     |       | 12.00%, 11/1/2014                        |  | $         | 1,030  |  |                     | $ | 1,038  |                |  | $ | 1,051              |  
|American Media, Inc.                         |  | Media: Advertising, Printing & Publishing |       | 11.50%, 12/15/2017                       |  |           | 670    |  |                     |   | 704    |                |  |   | 729                |  
|Endeavour International Corp.                |  | Energy: Oil & Gas                         |       | 12.00%, 3/1/2018                         |  |           | 525    |  |                     |   | 551    |                |  |   | 539                |  
|EuraMax International Inc.                   |  | Metals & Mining                           |       | 9.50%, 4/1/2016                          |  |           | 775    |  |                     |   | 779    |                |  |   | 777                |  
|GXS Worldwide, Inc.                          |  | Services: Business                        |       | 9.75%, 6/15/2015                         |  |           | 940    |  |                     |   | 965    |                |  |   | 971                |  
|Ryerson Inc./Joseph T Ryerson & Son, Inc.    |  | Metals & Mining                           |       | 9.00%, 10/15/2017                        |  |           | 420    |  |                     |   | 438    |                |  |   | 445                |  
|Sub Total Senior Secured First Lien Debt     |  |                                           | 4,360 |                                          |  |           | 4,475  |  |                     |   | 4,512  |                |  |   | 16.4               | %
|                                             |  |                                           |       |                                          |  |           |        |  |                     |   |        |                |  |   |                    |  
|Senior Secured Second Lien  Debt - 19.3% (b) |  |                                           |       |                                          |  |           |        |  |                     |   |        |                |  |   |                    |  
|Apria Healthcare Group, Inc.                 |  | Healthcare & Pharmaceuticals              |       | 12.38%, 11/1/2014                        |  | $         | 571    |  |                     | $ | 581    |                |  | $ | 576                |  
|Aspect Software, Inc.                        |  | Telecommunications                        |       | 10.63%, 5/15/2017                        |  |           | 692    |  |                     |   | 696    |                |  |   | 697                |  
|Bon-ton Department Stores, Inc.              |  | Retail                                    |       | 10.63%, 7/15/2017                        |  |           | 40     |  |                     |   | 41     |                |  |   | 40                 |  
|Caesar's Entertainment Corp.                 |  | Hotel, Gaming & Leisure                   |       | 10.00%, 12/15/2015                       |  |           | 505    |  |                     |   | 481    |                |  |   | 432                |  
|Cenveo Corp.                                 |  | Services: Business                        |       | 8.88%, 2/1/2018                          |  |           | 585    |  |                     |   | 589    |                |  |   | 585                |  
|Endeavour International Corp.                |  | Energy: Oil & Gas                         |       | 12.00%, 6/1/2018                         |  |           | 700    |  |                     |   | 688    |                |  |   | 655                |  
|Logan's Roadhouse, Inc.                      |  | Beverage, Food & Tobacco                  |       | 10.75%, 10/15/2017                       |  |           | 750    |  |                     |   | 715    |                |  |   | 557                |  
|Radiation Therapy Services, Inc.             |  | Healthcare & Pharmaceuticals              |       | 8.88%, 1/15/2017                         |  |           | 935    |  |                     |   | 922    |                |  |   | 944                |  
|Saratoga Resources, Inc.                     |  | Energy: Oil & Gas                         |       | 12.50%, 7/1/2016                         |  |           | 860    |  |                     |   | 888    |                |  |   | 804                |  
|Sub Total Senior Secured Second Lien Debt    |  |                                           | 5,638 |                                          |  |           | 5,601  |  |                     |   | 5,290  |                |  |   | 19.3               | %
|                                             |  |                                           |       |                                          |  |           |        |  |                     |   |        |                |  |   |                    |  
|Senior Unsecured Debt – 27.1% (b)            |  |                                           |       |                                          |  |           |        |  |                     |   |        |                |  |   |                    |  
|Avaya, Inc.                                  |  | Telecommunications                        |       | 9.75%, 11/1/2015                         |  | $         | 650    |  |                     | $ | 633    |                |  | $ | 645                |  
|Avaya, Inc.                                  |  | Telecommunications                        |       | 10.13%, 11/1/2015                        |  |           | 460    |  |                     |   | 442    |                |  |   | 457                |  
|Caesar's Entertainment Corp.                 |  | Hotel, Gaming & Leisure                   |       | 10.75%, 2/1/2016                         |  |           | 445    |  |                     |   | 416    |                |  |   | 358                |  
|Cenveo Corp.                                 |  | Services: Business                        |       | 11.50%, 5/15/2017                        |  |           | 510    |  |                     |   | 492    |                |  |   | 502                |  
|Ceridian Corporation                         |  | Services: Business                        |       | 11.25%, 11/15/15                         |  |           | 390    |  |                     |   | 402    |                |  |   | 393                |  
|Ceridian Corporation                         |  | Services: Business                        |       | 12.25%, 11/15/15                         |  |           | 560    |  |                     |   | 576    |                |  |   | 564                |  
|Colt Defense LLC                             |  | Aerospace and Defense                     |       | 8.75%, 11/15/2017                        |  |           | 853    |  |                     |   | 718    |                |  |   | 737                |  
|DynCorp International Inc.                   |  | Aerospace and Defense                     |       | 10.38%, 7/1/2017                         |  |           | 810    |  |                     |   | 850    |                |  |   | 828                |  
|Education Management LLC (d)                 |  | Services: Consumer                        |       | 15.00%, 7/1/2018                         |  |           | 270    |  |                     |   | 232    |                |  |   | 293                |  
|Harland Clarke Corp.                         |  | Banking, Finance, Insurance & Real Estate |       | 9.50%, 5/15/5015                         |  |           | 691    |  |                     |   | 692    |                |  |   | 694                |  
|Hutchinson Technology, Inc.                  |  | High Tech Industries                      |       | 8.50%, 1/15/2026                         |  |           | 443    |  |                     |   | 406    |                |  |   | 388                |  
|NII Capital Corp.                            |  | Telecommunications                        |       | 10.00%, 8/15/2016                        |  |           | 925    |  |                     |   | 907    |                |  |   | 490                |  
|Suntech Power Holdings Company, Ltd. (c)     |  | Environmental Industries                  |       | 3.00%, 2/28/2014                         |  |           | 100    |  |                     |   | 98     |                |  |   | 8                  |  
|Toys R Us Inc.                               |  | Retail                                    |       | 10.38%, 8/15/2017                        |  |           | 825    |  |                     |   | 790    |                |  |   | 707                |  
|Travelport LLC                               |  | Services: Consumer                        |       | 13.88%, 3/1/2016                         |  |           | 340    |  |                     |   | 308    |                |  |   | 361                |  
|Sub Total Senior Unsecured Debt              |  |                                           | 8,272 |                                          |  |           | 7,962  |  |                     |   | 7,425  |                |  |   | 27.1               | %
|                                             |  |                                           |       |                                          |  |           |        |  |                     |   |        |                |  |   |                    |  
|Senior Subordinated Debt - 21.6% (b)         |  |                                           |       |                                          |  |           |        |  |                     |   |        |                |  |   |                    |  
|Accelent, Inc.                               |  | Healthcare & Pharmaceuticals              |       | 10.00%, 11/1/2017                        |  | $         | 775    |  |                     | $ | 732    |                |  | $ | 800                |  
|Affinion Group, Inc.                         |  | Media: Advertising, Printing & Publishing |       | 13.50%, 8/15/2018                        |  |           | 816    |  |                     |   | 689    |                |  |   | 812                |  
|Claires Stores, Inc                          |  | Retail                                    |       | 10.50%, 6/1/2017                         |  |           | 215    |  |                     |   | 220    |                |  |   | 220                |  
|DJO Finance, LLC.                            |  | Healthcare & Pharmaceuticals              |       | 9.75%, 10/15/2017                        |  |           | 825    |  |                     |   | 864    |                |  |   | 840                |  
|First Data Corp.                             |  | Banking, Finance, Insurance & Real Estate |       | 11.25%, 3/31/2016                        |  |           | 374    |  |                     |   | 375    |                |  |   | 375                |  
|QuickSilver Resources, Inc.                  |  | Energy: Oil & Gas                         |       | 7.13%, 4/1/2016                          |  |           | 620    |  |                     |   | 594    |                |  |   | 606                |  
|Radio One, Inc.                              |  | Media: Broadcasting & Subscription        |       | 12.50%, 5/24/16                          |  |           | 875    |  |                     |   | 889    |                |  |   | 875                |  
|Serena Software, Inc.                        |  | High Tech Industries                      |       | 10.38%, 3/15/2016                        |  |           | 770    |  |                     |   | 786    |                |  |   | 770                |  
|Travelport LLC                               |  | Services: Consumer                        |       | 11.88%, 9/1/2016                         |  |           | 620    |  |                     |   | 582    |                |  |   | 629                |  
|Sub Total Senior Subordinated Debt           |  |                                           | 5,890 |                                          |  |           | 5,731  |  |                     |   | 5,927  |                |  |   | 21.6               | %
|                                             |  |                                           |       |                                          |  |           |        |  |                     |   |        |                |  |   |                    |  
|Investments - Money Market - 6.0%            |  |                                           |       |                                          |  |           |        |  |                     |   |        |                |  |   |                    |  
|Investments - Money Market                   |  |                                           |       |                                          |  | $         | 1,644  |  |                     |   | 1,644  |                |  |   | 1,644              |  
|Sub Total Investments - Money Market         |  |                                           |       |                                          |  |           | 1,644  |  |                     |   | 1,644  |                |  |   | 6.0                | %
|                                             |  |                                           |       |                                          |  |           |        |  |                     |   |        |                |  |   |                    |  
|TOTAL INVESTMENTS
    - 90.4% (b)            |  |                                           |       |                                          |  | $         | 25,413 |  |                     | $ | 24,798 |                |  |   | 90.4               | %





| | (a) | All of our investments are issued by eligible U.S. portfolio companies, as defined in the Investment Company Act of 1940, except for Caesar's Entertainment Corp., Education Management LLC, NII Capital Corp., QuickSilver Resources, Inc., and Suntech Power Holdings Company, Ltd. Non-qualifying assets represent 8.8% of the Company's portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Percentages are based on net assets of $27,424 as of December 31, 2013.
| | --- | -----------------------------------------------------------------------



| | (c) | Non-U.S. company. The principal place of business for Suntech Power Holdings Company, Ltd. is China.
| | --- | ----------------------------------------------------------------------------------------------------



| | (d) | The notes pay cash interest at the rate of 15% per annum. For any interest period after March 30, 2014, the notes pay additional PIK interest in the form of additional notes. PIK interest on the notes accrues at the rate of (i) 1.0% per annum for the period from March 30, 2014 through and including March 30, 2015, (ii) 2.0% per annum for the period from March 30, 2015 through and including March 30, 2016, (iii) 3.0% per annum for the period from March 30, 2016 through and including March 30, 2017 and (iv) 4.0% per annum for the period from March 30, 2017 through and including July 1, 2018.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



8







VII PEAKS CO-OPTIVIST INCOME BDC II, INC.



NOTES TO FINANCIAL STATEMENTS

September 30, 2014



(Unaudited)



Note 1.  Nature of Operations



VII Peaks Co-Optivist TM
Income BDC II, Inc. (the “Fund” or “we”), a Maryland Corporation formed in August 3, 2011 is  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 (“1940 Act”). In addition, we have elected to be treated for
federal income tax purpose, and intend to qualify annually, as a regulated investment company, or RIC, under Subchapter M of the
Internal Revenue Code of 1986, as amended, or the Code.



We are managed by VII Peaks
Capital, LLC, or our (“Manager”), which is registered as an investment adviser with the Security Exchange Commission,
or (“SEC”). Our Manager is responsible for sourcing potential investments, analyzing investment opportunities, structuring
our investments, and monitoring our investments and portfolio companies on an ongoing basis.



On August 9, 2011, we filed
a registration statement on Form N-2 to sell up to 75,000,000 shares of common stock, $0.001 par value per share, at an initial
public offering price of $10.00 per share. The registration statement was declared effective by the SEC on March 1, 2012. We commenced
operations when we raised gross offering proceeds of over $1.0 million, all of which was from persons who were not affiliated with
us or our manager by one year from the date the registration statement was declared effective by the SEC. Prior to the successful
satisfaction of that condition, all subscription payments were placed in an account held by the escrow agent, UMB Bank, N.A., in
trust for the benefit of our subscribers, pending release to us. We achieved the minimum offering requirement on July 10, 2012
and commenced operations on such date. As of September 30, 2014, we issued 5.0 million shares of common stock, including 0.2 million
shares under our distribution reinvestment plan (“DRIP”) and 0.07 million shares redeemed under our tender offer. Gross
proceeds from our common stock issuances total $50.0 million, including $1.5 million under our distribution reinvestment plan (“DRIP”)
and $0.7 million in tender offer redemption shares.



Note 2.  Summary of Significant
Accounting Policies



Basis of Presentation



The financial statements
of the Fund included herein were prepared in conformity with accounting principles generally accepted in the United States of America
("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q/A and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, these financial statements include all adjustments, consisting only of normal recurring adjustments
and accruals, necessary for a fair presentation of the results for the interim period. This Form 10-Q/A should be read in conjunction
with the Fund’s annual report on Form 10-K/A for the year ended December 31, 2013, which was filed with the SEC on July 16,
2015. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved
for the fiscal year ending December 31, 2014. Certain prior period amounts have been reclassified to conform to the current period
presentation.



Use of Estimates in the Preparation of
Financial Statements



The preparation of the
accompanying financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial
statements, and income, gains (losses) and expenses during the period reported. Actual results could differ materially from those
estimates.



Investments - Money Market



The Fund has classified
its money market investments as investments carried at fair value.



Organizational and Offering Costs



The Fund is a closed-end
fund with a continuous offering period. Under the investment advisory agreement between the Fund and the Manager, our Manager fronts
the cost of the organizational and offering expenses which are reimbursable by the Fund with up to 1.5% of the gross offering proceeds.
The Fund expenses organizational and offering costs as they become payable under the investment advisory agreement.



9







U.S. Federal Income Taxes



The Fund has elected to
be treated for federal income tax purposes as a RIC under subchapter M of the Code and to operate in a manner so as to qualify
for the tax treatment applicable to RICs. In order to qualify as a RIC, among other things, the Fund is required to annually distribute
to its stockholders at least 90% of investment company taxable income, as defined by the Code. So long as the Fund maintains its
status as a RIC, it generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that
it distributes at least annually to its stockholders as distributions. Rather, any tax liability related to income earned by the
Fund represents obligations of the Fund’s investors and will not be reflected in the financial statements of the Fund. The
Fund will also be subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income,
98.2% of capital gain net income, if any, and any recognized and undistributed income from prior years for which it paid no federal
income taxes.



The Fund has evaluated
the implications of ASC Topic 740, for all open tax years and in all major tax jurisdictions, and determined that there is no material
impact on the financial statements. The Fund continues to remain subject to examination by U.S. federal and state authorities for
the years 2010 through 2013.



New Accounting Pronouncements



In June 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-11 "Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures." ASU No. 2014-11 makes limited changes to the accounting for repurchase
agreements, clarifies when repurchase agreements and securities lending transactions should be accounted for as secured borrowings,
and requires additional disclosures regarding these types of transactions. The guidance is effective for fiscal years beginning
on or after December 15, 2014, and for interim periods within those fiscal years. Management is currently evaluating the impact
these changes will have on the Fund's financial statement disclosures.



In June 2013, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-08, Financial Services
– Investment Companies (Accounting Standards Codification (“ASC”) Topic 946), which affects the scope, measurement
and disclosure requirements for investment companies under U.S. GAAP.  ASU 2013-08 contains new guidance on assessing whether
an entity is an investment company, requiring non-controlling ownership interest in investment companies to be measured at fair
value and requiring certain additional disclosures. This guidance became effective for us on January 1, 2014 and did not have a
material impact on our financial position or disclosures.



Revenue Recognition



We generate investment income in the form of
interest and fees earned on senior secured loans, senior secured notes, subordinated debt, senior unsecured debt and collateralized
securities in our portfolio. The level of income we receive is directly related to the collectible balance of income producing
investments multiplied by the weighted average yield of our investments.



We record interest income on an accrual
basis to the extent that we expect to collect such amounts. Coupon interest income is adjusted for amortization of premiums and
accretion of discounts. For loans and debt securities with contractual payment-in-kind (“PIK”) interest, which represents
contractual interest accrued and added to the principal balance, we generally will not accrue PIK interest for accounting purposes
if the portfolio company valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest
on loans and debt securities for accounting purposes if we have reason to doubt our ability to collect such interest. Original
issue discounts, market discounts or premiums are accreted or amortized using the effective interest method as interest income.
We record prepayment premiums on loans and debt securities as interest income. Dividend income, if any, is recognized on an accrual
basis to the extent that we expect to collect such amount.



Expense Reimbursement Agreement



We entered into an expense
reimbursement agreement with VII Peaks-KBR BDC Advisor II, LLC (the “prior manager”), under which the prior manager
agreed to reimburse us for certain GAAP compliant expenses recognized on our quarterly financial statements for 2012, retroactive
to the date of formation on August 3, 2011. In 2013, the expense reimbursement agreement was modified to exclude management fees
and incentive fees payable to the prior manager effective as of January 1, 2013. We recognized a receivable on our books for the
amount due from the prior manager under the expense reimbursement agreement, and the prior manager recognized a liability on its
books in the same amount.



On August 20, 2013, we
terminated our investment management agreement with our prior manager, and entered into a new investment management agreement with
our current Manager. Our current Manager has not entered into an expense reimbursement agreement with us, but has agreed to assume
the prior manager’s obligation to pay us the $1.3 million which had accrued under the prior manager’s expense reimbursement
agreement. In consideration for such assumption, we have agreed to pay our current Manager any amounts otherwise due our prior
manager for organization and offering expenses funded by our prior manager, subject to the limitation that such organization and
offering costs may only be reimbursed to the extent of 1.5% of offering proceeds.



The Manager paid in full
the Due from Affiliate balance of $1.3 million the quarter ended June 30, 2014. Interest on the Due from Affiliate balance was
also accrued in the amount of $0.1 million at the rate of 7.35% per annum.



Note 3. Restatement of previously issued
financial statements.



We determined that we had incorrectly accounted
for certain offering costs. The Fund’s agreement with its Manager provides that the Manager is to bear all offering costs,
but the Fund is obligated to reimburse the Manager for such offering costs at the rate of 1.5% of gross offering proceeds. The
Fund determined that some offering costs were paid by the Fund instead of the Manager during the period from the fourth quarter
of 2013 to the fourth quarter of 2014. The restatement reduces operating expenses (and increases net investment income) by the
amount of offering costs erroneously paid by the Fund in the relevant period, and reflects the amount as a receivable from the
Manager. In the period ending June 30, 2015, the Manager repaid the receivable. At the same time, we have reclassified certain
other operating expenses to conform with the Fund’s current method of classifying operating expenses to facilitate comparability
of financial statements among different periods. We have restated our financial statements and related footnotes for the quarter
ended September 30, 2014. The following tables reconcile the amounts as previously reported in the applicable financial statement
to the corresponding restated amounts included in this Quarterly Report on Form 10-Q/A (in thousands, except per share data).



10







|                                                            |  | September 30, 2014    |       
|----------------------------------------------------------- |  | --------------------- | ------
|                                                            |  | As previouslyreported |       
|Statement of Assets and Liabilities                         |  |                       |       
|                                                            |  |                       |       
|Due from related party                                      |  | $                     | 98    
|Total assets                                                |  | $                     | 39,379
|                                                            |  |                       |       
|Accumulated distribution in excess of net investment income |  | $                     | (2,134
|Total net assets                                            |  | $                     | 38,223
|Total liabilities and net assets                            |  | $                     | 39,379
|                                                            |  |                       |       
|Net asset value per share                                   |  | $                     | 7.79  



|                                          |  | For the Three Months Ended |   
|----------------------------------------- |  | -------------------------- | --
|                                          |  | September 30, 2014         |   
|                                          |  | As previouslyreported      |   
|Statement of Operations                   |  |                            |   
|                                          |  |                            |   
|Administrative services – related parties |  | $                          | 89
|General and administrative                |  | $                          | 99



|                                                                |  | For the Nine Months Ended |       
|--------------------------------------------------------------- |  | ------------------------- | ------
|                                                                |  | September 30, 2014        |       
|                                                                |  | As previouslyreported     |       
|Statement of Operations                                         |  |                           |       
|                                                                |  |                           |       
|Professional fees                                               |  | $                         | 202   
|Administrative services – related parties                       |  | $                         | 229   
|General and administrative                                      |  | $                         | 479   
|Organizational and offering expense                             |  | $                         | 252   
|Expenses before expense waivers and reimbursements              |  | $                         | 1,798 
|Total expenses (income) net expense waivers and reimbursements  |  | $                         | 1,798 
|                                                                |  |                           |       
|Net investment income (loss)                                    |  | $                         | 607   
|                                                                |  |                           |       
|Net increase (decrease) in net assets resulting from operations |  | $                         | (2,935
|                                                                |  |                           |       
|Per share information - basic and diluted:                      |  |                           |       
|Net investment income (loss)                                    |  | $                         | 0.15  
|Net increase (decrease) in net assets resulting from operations |  | $                         | (0.74 
|                                                                |  |                           |       
|Statement of Changes in Net Assets                              |  |                           |       
|                                                                |  |                           |       
|Net investment income (loss)                                    |  | $                         | 607   
|Net increase (decrease) in net assets resulting from operations |  | $                         | (2,935
|                                                                |  |                           |       
|Distributions from net investment income                        |  | $                         | (607  
|Distributions from paid in capital                              |  | $                         | (1,473
|                                                                |  |                           |       
|Total increase in net assets                                    |  | $                         | 10,850
|Net assets at beginning of period                               |  | $                         | 27,373
|Net assets at end of period                                     |  | $                         | 38,223
|                                                                |  |                           |       
|Accumulated distribution in excess of net investment income     |  | $                         | (2,134



11







|                                                                |  | September 30, 2014    |       
|--------------------------------------------------------------- |  | --------------------- | ------
|                                                                |  | As previouslyreported |       
|Statement of Cash Flows                                         |  |                       |       
|                                                                |  |                       |       
|Net increase (decrease) in net assets resulting from operations |  | $                     | (2,935
|Due from related party                                          |  | $                     | 1,287 



Note 4. Valuation of Portfolio Investments



The investment portfolio
is recorded on a trade date basis. The Fund determines the net asset value of its investment portfolio each quarter. Securities
that are publicly-traded are valued at the reported closing price on the valuation date. Forty one of the forty two investments
were valued using the closing market price at period end September 30, 2014. The exception was the investment in Education Management
LLC, 15% Notes due July 1, 2018. The market did not have a sufficient amount of trades to use the quoted price for this position.



Securities that are not
publicly-traded are valued at fair value as determined in good faith by the board of directors. In connection with that determination,
the Manager will prepare portfolio company valuations using relevant inputs, including, but not limited to, indicative dealer quotes,
values of like securities, the most recent portfolio company financial statements and forecasts, and valuations prepared by third-party
valuation services. With respect to investments for which market quotations are not readily available, the Fund will undertake
a multi-step valuation process each quarter, as described below:



| | • | the quarterly valuation process begins with each portfolio company or investment being initially valued by members of the investment committee, with such valuation taking into account information received from an independent valuation firm, if applicable;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | preliminary valuation conclusions are then documented and discussed with the members of the board of directors; and
| | - | -------------------------------------------------------------------------------------------------------------------



| | • | the board of directors discusses valuations and determines the fair value of each investment in the portfolio in good faith based on various statistical and other factors, including the input and recommendation of members of the investment committee and any third-party valuation firm, if applicable.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Investments are valued utilizing a market approach,
an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated
by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses
valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value amount (discounted)
calculated based on an appropriate discount rate. The measurement is based on the net present value indicated by current market
expectations about those future amounts.



In following these approaches,
the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current
market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples,
security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio
company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does
business, comparisons of financial ratios of peer companies that are public, mergers and acquisition comparables, the principal
market and enterprise values, among other factors.



The Fund has adopted
FASB ASC Topic 820, Fair Value Measurements and Disclosures (formerly Statement of Financial Accounting Standards No. 157,
Fair Value Measurements ), which defines fair value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles and expands disclosures about fair value measurements.



ASC Topic 820 clarifies
that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability
in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous
market for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at
the measurement date, considered from the perspective of market participants. ASC Topic 820 provides a consistent definition of
fair value which focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over
entity-specific inputs. In addition, ASC Topic 820 provides a framework for measuring fair value and establishes a three-level
hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the
measurement date. The three levels of valuation hierarchy established by ASC Topic 820 are defined as follows:



Level 1:  Quoted
prices in active markets for identical assets or liabilities, accessible by the Fund at the measurement date.



Level 2:  Quoted
prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in
markets that are not active, or other observable inputs other than quoted prices.



Level 3:  Unobservable
inputs for the asset or liability.



12







In all cases, the level
in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest
level of input that is significant to the fair value measurement.



The following table presents fair value measurements
of investments, by major class, as of September 30, 2014, according to the fair value hierarchy (dollars in thousands):



|                                     |  | Level 1 |       |  | Level 2 |   |        | Level 3 |  |   | Total | 
|------------------------------------ |  | ------- | ----- |  | ------- | - | ------ | ------- |  | - | ----- | 
|Investments – U.S. Bank money market |  | $       | 4,561 |  |         | $ | —      |         |  | $ | —     | 
|Senior Secured First Lien Debt       |  |         | —     |  |         |   | 7,346  |         |  |   | —     | 
|Senior Secured Second Lien Debt      |  |         | —     |  |         |   | 4,807  |         |  |   | —     | 
|Senior Unsecured Debt                |  |         | —     |  |         |   | 14,717 |         |  |   | 870   | 
|Senior Subordinated Debt             |  |         | —     |  |         |   | 5,159  |         |  |   | —     | 
|Total                                |  | $       | 4,561 |  |         | $ | 32,029 |         |  | $ | 870   | 



The following table presents fair value measurements
of investments, by major class, as of December 31, 2013, according to the fair value hierarchy (dollars in thousands):



|                                     |  | Level 1 |       |  | Level 2 |   |        | Level 3 |  |   | Total | 
|------------------------------------ |  | ------- | ----- |  | ------- | - | ------ | ------- |  | - | ----- | 
|Investments – U.S. Bank money market |  | $       | 1,644 |  |         | $ | —      |         |  | $ | —     | 
|Senior Secured First Lien Debt       |  |         | —     |  |         |   | 4,512  |         |  |   | —     | 
|Senior Secured Second Lien Debt      |  |         | —     |  |         |   | 5,290  |         |  |   | —     | 
|Senior Unsecured Debt                |  |         | —     |  |         |   | 7,425  |         |  |   | —     | 
|Senior Subordinated Debt             |  |         | —     |  |         |   | 5,927  |         |  |   | —     | 
|Total                                |  | $       | 1,644 |  |         | $ | 23,154 |         |  | $ | —     | 



There was one transfer between levels for the
period ending September 30, 2014, Education Management, LLC. 15%, 7/1/2018. There were no transfers between levels for the period
ending December 31, 2013.



During the year, the following were the
transfers in or out of levels:



|                      |  | Level 1 |   |  | Level 2 |   |      | Level 3 |  |   | Total | 
|--------------------- |  | ------- | - |  | ------- | - | ---- | ------- |  | - | ----- | 
|Senior Unsecured Debt |  | $       | — |  |         | $ | (870 | )       |  | $ | 870   | 
|Total                 |  | $       | — |  |         | $ | (870 | )       |  | $ | 870   | 



The following table presents
additional information about Level 3 assets measured at fair value. Both observable and unobservable inputs may be used to determine
the fair value of positions that the Company has classified within the Level 3 category. As a result, the net unrealized gains
and losses for assets within the Level 3 category may include changes in fair value that were attributable to both observable and
unobservable inputs.



Changes in Level 3 assets measured at fair value
for the quarter ended September 30, 2014 are as follows:



|                      |  | FairValue atJune 30,2014 |     |  | Purchases(Sales andSettlements) |   |   | Amortizationand Accretionof FixedIncomePremiums andDiscounts |  |   | RealizedandUnrealizedGains(Losses) |  |  | FairValue atSeptember30,2014 |     |  | Change inUnrealizedGains (Losses)for Investmentsheld as ofSeptember 30,2014 |  
|--------------------- |  | ------------------------ | --- |  | ------------------------------- | - | - | ------------------------------------------------------------ |  | - | ---------------------------------- |  |  | ---------------------------- | --- |  | --------------------------------------------------------------------------- | -
|Senior Unsecured Debt |  | $                        | 435 |  |                                 | $ | — |                                                              |  | $ | 36                                 |  |  | $                            | 399 |  |                                                                             | $
|Total                 |  | $                        | 435 |  |                                 | $ | — |                                                              |  | $ | 36                                 |  |  | $                            | 399 |  |                                                                             | $



Realized and unrealized
gains and losses are included in net realized gain (loss) on investments and net change in unrealized gain (loss) on investments
in the Statement of Operations. The change in unrealized losses for Level 3 investments still held as of September 30, 2014 of
$435 is included in net change in net unrealized gain (loss) on investments in the Statement of Changes in Net Assets for the quarter
ended September 30, 2014.



13







The following table provides quantitative information
regarding Level 3 fair value measurements as of September 30, 2014 (dollars in thousands):



|                      |  |   |            |  |  |                    |  |                   |  |   |       | Range | 
|--------------------- |  | - | ---------- |  |  | ------------------ |  | ----------------- |  | - | ----- | ----- | 
|                      |  |   | Fair Value |  |  | ValuationTechnique |  | UnobservableInput |  |   | Mean  |       | 
|Senior Unsecured Debt |  | $ | 870        |  |  | Liquidation value  |  | Transaction Value |  | $ | 1,143 |       | 
|Total                 |  | $ | 870        |  |  |                    |  |                   |  |   |       |       | 



The primary significant unobservable input used
in the fair value measurement of the Company's debt securities (unsecured debt), is the fair value of the debt issuer's equity
securities which will be exchanged with the notes. Significant increases (decreases) in the fair values of the issuer's equity
securities would result in a significantly lower (higher) fair value measurement.



The composition of the Fund’s investments
as of September 30, 2014, at amortized cost and fair value were as follows (dollars in thousands):



|                                     |  | Investments atAmortized Cost |        |  | Investments atFair Value |   |        | Fair ValuePercentageof Total Portfolio | 
|------------------------------------ |  | ---------------------------- | ------ |  | ------------------------ | - | ------ | -------------------------------------- | 
|Investments – U.S. Bank money market |  | $                            | 4,561  |  |                          | $ | 4,561  |                                        | 
|Senior Secured First Lien Debt       |  |                              | 7,699  |  |                          |   | 7,346  |                                        | 
|Senior Secured Second Lien Debt      |  |                              | 5,787  |  |                          |   | 4,807  |                                        | 
|Senior Unsecured Debt                |  |                              | 18,038 |  |                          |   | 15,587 |                                        | 
|Senior Subordinated Debt             |  |                              | 5,646  |  |                          |   | 5,159  |                                        | 
|Total                                |  | $                            | 41,731 |  |                          | $ | 37,460 |                                        | 



The composition of the Fund’s investments
as of December 31, 2013, at amortized cost and fair value were as follows (dollars in thousands):



|                                     |  | Investments atAmortized Cost |        |  | Investments atFair Value |   |        | Fair ValuePercentageof Total Portfolio | 
|------------------------------------ |  | ---------------------------- | ------ |  | ------------------------ | - | ------ | -------------------------------------- | 
|Investments – U.S. Bank money market |  | $                            | 1,644  |  |                          | $ | 1,644  |                                        | 
|Senior Secured First Lien Debt       |  |                              | 4,475  |  |                          |   | 4,512  |                                        | 
|Senior Secured Second Lien Debt      |  |                              | 5,601  |  |                          |   | 5,290  |                                        | 
|Senior Unsecured Debt                |  |                              | 7,962  |  |                          |   | 7,425  |                                        | 
|Senior Subordinated Debt             |  |                              | 5,731  |  |                          |   | 5,927  |                                        | 
|Total                                |  | $                            | 25,413 |  |                          | $ | 24,798 |                                        | 



Note 5.  Related Party Transactions



Since August 20, 2013,
the Fund has been managed by the Manager. Prior to August 20, 2013 the Fund was managed by VII Peaks-KBR BDC Advisor II, LLC which
was wholly-owned by VII Peaks-KBR, LLC which was a joint venture between the Manager and KBR Capital Advisors, LLC (“KBR”).



Investment Advisory Agreement



The Fund has entered into
an investment advisory agreement with the Manager to manage the Fund’s investment activities. Pursuant to the investment
advisory agreement, the Manager implements the Fund’s business strategy on a day-to-day basis and performs certain services
for us, subject to oversight by our board of directors. The Manager is responsible for, among other duties, determining investment
criteria, sourcing, analyzing and executing investment transactions, asset sales, financings and performing asset management duties.
Under the investment advisory agreement, the Manager is entitled to a base management and incentive fee as outlined in the investment
advisory agreement with the Fund. The base management fee is 2% of net assets below $100 million; 1.75% of net assets between $100
million and $250 million; and 1.5% of net assets over $250 million. For the three and nine months ended September 30, 2014, the
Fund incurred $0.2 million and $0.5 million of base management fees, respectively. For the three and nine months ended September
30, 2013, the Fund incurred $0.1 million and $0.3 million of base management fees, respectively.



The incentive fee has two parts. The first part,
the subordinated incentive fee on income, is calculated and payable quarterly in arrears based upon the Fund’s “pre-incentive
fee net investment income” for the immediately preceding quarter. The subordinated incentive fee on income is 20% of pre-incentive
net investment income subject to a quarterly return to investors, expressed as a rate of return on adjusted capital at the beginning
of the most recently completed calendar quarter, of 2.0% (8.0% annualized). The second part of the incentive fee, the incentive
fee on capital gains, is an incentive fee on capital gains earned on liquidated investments from the portfolio and is determined
and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory agreement). This fee
equals 20% of the Fund’s incentive fee capital gains, which will equal the Fund’s realized capital gains on a cumulative
basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized
capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. For
the three and nine months ended September 30, 2014 and 2013, the Fund did not incur any incentive fees related to net investment
income or capital gains.



14







Under U.S. GAAP,
the Fund calculates capital gains incentive fees as if the Fund had realized all assets at their fair values and liabilities at
their settlement amounts as of the reporting date. U.S. GAAP requires that the capital gains incentive fee accrual assume the cumulative
aggregate unrealized capital appreciation is realized, even though such unrealized capital appreciation is not payable under the
investment advisory agreement. Accordingly, the Fund accrues a provisional capital gains incentive fee taking into account any
unrealized gains or losses. There can be no assurance that such unrealized capital appreciation will be realized in the future
and that the provisional capital gains incentive fee will become payable.



Under the investment advisory
agreement, the Manager bears all offering and organizational expenses. Pursuant to the terms of the investment advisory agreement,
the Fund has agreed to reimburse the Manager for any such organizational and offering expenses incurred by the Manager not to exceed
1.5% of the gross subscriptions raised by the Fund over the course of the offering period, which is currently scheduled to terminate
two years from the initial offering date, unless extended. From each sale of common stock, the Fund pays the Manager the lesser
of 1.5% of the gross offering proceeds or the amount of unreimbursed offering and organizational expenses incurred by the Manager.
The Fund expenses organizational and offering costs as they become payable to the Manager under the investment advisory agreement.



The Manager agreed to assume
and pay the Fund all amounts due the Fund from the prior manager as reflected in the Fund’s books and records as of August
20, 2013, including any amounts due under the Expense Reimbursement Agreement between the Fund and the prior manager. The Fund
agreed to pay the Manager any reimbursable organization and offering expenses incurred by the prior manager which the Fund would
otherwise be obligated to reimburse the prior manager from future sales of the Company’s securities, beginning with any sales
of securities occurring after Augusts 20, 2013, subject to the limitation that such organization and offering costs may only be
reimbursed to the extent of 1.5% of offering proceeds.



From time to time, the
Fund has paid directly certain expenses that were classified as organization or offering expenses that should have been borne by
the prior manager and for which the prior manager is obligated to reimburse the Fund. As of September 30, 2014 and December 31,
2013, the unreimbursed amount of organization and offering expenses was $0.2 million and $0.1 million, respectively, which amount
is included in “Due from related party” on the Fund’s balance sheet as of that date. From time to time, the Fund has paid directly certain expenses that were classified as offering expenses that should have been borne by the Manager and for which the Manager is obligated to reimburse the Fund. As of September 30, 2014 and December 31, 2013, the unreimbursed amount of offering expenses was $0.1 million and $0.1 million, respectively, which amount is included in “Due from related party” on the Fund’s balance sheet as of those dates.



Expense Reimbursement Agreement



We entered into an expense
reimbursement agreement with our prior manager under which the prior manager agreed to reimburse us for certain operating expenses
recognized on our quarterly financial statements for 2012, retroactive to the date of formation on August 3, 2011. In 2013, the
expense reimbursement agreement was modified to exclude management fees and incentive fees payable to the prior manager effective
as of January 1, 2013. We recognized a receivable on our books for the amount due from the prior manager under the expense reimbursement
agreement, and the prior manager recognized a liability on its books in the same amount.



On August 20, 2013, we
terminated our investment management agreement with our prior manager, and entered into a new investment management agreement with
our current Manager. Our current Manager has not entered into an expense reimbursement agreement with us, but agreed to assume
the prior manager’s obligation to pay us the $1.3 million which had accrued under the prior manager’s expense reimbursement
agreement. In consideration for such assumption, we have agreed to pay our current Manager any amounts otherwise due our prior
manager for organization and offering expenses funded by our prior manager, subject to the limitation that such organization and
offering costs may only be reimbursed to the extent of 1.5% of offering proceeds.



Our Manager paid in full the Due from Affiliate
balance of $1.3 million in the prior quarter ending June 30, 2014. In addition, in the same period, we accrued $0.1 million of
interest on such amount at the rate of 7.35% per annum.



Administration Agreement



We also entered
into an administration agreement with the Manager under which the Manager provides us with office facilities, equipment and clerical,
bookkeeping and record keeping services at such facilities. Under the administration agreement, our Manager also performs, or oversees
the performance of, our required administrative services, which include, among other things, transfer agency and other service
provider supervision and oversight, preparation and supervision of the financial records for which we are required to maintain
for SEC reporting, stockholder reporting and our other needs, implementation and supervision of a robust compliance program and
oversight and administration of the quarterly share repurchase program.



In addition, our Manager
assists us in activities which include among other things, performance and supervision of investor relations, our Board of Director
communication and reporting, determining and publishing our net asset value, overseeing the preparation and filing of our tax returns,
the communication, printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses
and other events such as distributions, and the performance of administrative and professional services rendered to us by others.



Under the administration
agreement, we are obligated to reimburse our Manager for our allocable portion of our Manager’s overhead cost incurred in
performing its duties under the administration agreement, including rent, the fees and expenses associated with overseeing and
performing the accounting and compliance functions, our allocable portion of the compensation of our chief financial officer, chief
compliance officer, compliance program and any administrative support staff; however, to date, the cost of the chief financial
officer, fund administration accounting, the chief compliance officer and compliance program are charged directly to us.



15







Under the administration
agreement, our Manager will also provide on our behalf managerial assistance to portfolio companies that request such assistance.
The amount of reimbursements to our Manager or services charged directly are captured in the Statement of Operations under “Administrative
Services”. During the three and nine months ended September 30, 2014, the Fund reimbursed the Manager or was charged directly
for $0.1 million and $0.2 million in administration expenses under the administration agreement, respectively. During the three
and nine months ended September 30, 2013, the Fund reimbursed the Manager for $0.01 million and $0.02 million in administration
expenses under the administration agreement, respectively.



Note 6.  Common Stock



Initially, the Manager
purchased 111 and 22,222 shares of common stock on August 31, 2011 and December 31, 2011, respectively. These shares were purchased
at a price of $9.00 per share, which represents the initial public offering (“IPO”) price of $10.00 per share, net
of selling commissions and dealer manager fees.



On July 10, 2012, the Fund
had raised sufficient proceeds to break escrow on its IPO and through September 30, 2014, the Fund has sold 4.9 million shares
of common stock for gross proceeds of $49.2 million, including the purchases made by the Manager.



During the nine months
ended September 30, 2014, the Fund sold 1,758,046 shares of common stock in its offering for net proceeds of $16.7 million, including
shares issued under the distribution reinvestment plan (“DRIP”). The Manager sold its shares during the nine months
ending September 30, 2014.



Note 7. Earnings (Loss) Per Share



In accordance with the
provisions of FASB ASC 260, “Earnings per Share” (“ASC 260”), basic earnings per share is computed by dividing
earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially
dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.



The following information sets forth the computation
of the weighted average basic and diluted net increase (decrease) in net assets per share from operations for the three and nine
months ended September 30, 2014 (dollars in thousands except share and per share amounts):



|                                                                          |  | For the threemonths endedSeptember 30,2014 |           |   | For the threemonths endedSeptember 30,2013 |  
|------------------------------------------------------------------------- |  | ------------------------------------------ | --------- | - | ------------------------------------------ | -
|                                                                          |  | (Restated)                                 |           |   |                                            |  
|Basic and diluted                                                         |  |                                            |           |   |                                            |  
|Net increase (decrease) in net assets resulting from operations           |  | $                                          | (2,275    | ) |                                            | $
|Weighted average common shares outstanding                                |  |                                            | 4,365,342 |   |                                            |  
|Net increase (decrease) in net assets resulting from operations per share |  | $                                          | (0.52     | ) |                                            | $



|                                                                          |  | For the ninemonths endedSeptember 30,2014 |           |   | For the ninemonths endedSeptember 30,2013 |  
|------------------------------------------------------------------------- |  | ----------------------------------------- | --------- | - | ----------------------------------------- | -
|                                                                          |  | (Restated)                                |           |   |                                           |  
|Basic and diluted                                                         |  |                                           |           |   |                                           |  
|Net increase (decrease) in net assets resulting from operations           |  | $                                         | (2,867    | ) |                                           | $
|Weighted average common shares outstanding                                |  |                                           | 3,962,809 |   |                                           |  
|Net increase (decrease) in net assets resulting from operations per share |  | $                                         | (0.72     | ) |                                           | $



The Fund had no potentially
dilutive securities as of September 30, 2014 or September 30, 2013, resulting in the same number of shares for basic and diluted.



Note 8. Tender Offer Program



We do not currently intend
to list our shares on any securities exchange and do not expect a public market for them to develop in the foreseeable future.
Therefore, shareholders should not expect to be able to sell their shares promptly or at a desired price. Beginning with fourth
calendar quarter of 2013 and on a quarterly basis thereafter, we intend to offer to repurchase shares of our common stock at a
price equal to 90% of our offering price on the date of repurchase. We currently intend to limit the number of shares to be repurchased
during any calendar year to 20% of the weighted average number of shares outstanding in the prior calendar year, or 5.0% in each
quarter, though the actual number of shares that we offer to repurchase may be less in light of the limitations noted above. We
will offer to repurchase such shares on each date of repurchase at a price equal to 90% of our offering price. For the nine months
ended September 30, 2014, the treasury shares were redeemed for $0.05 million less than the aggregate original purchase prices.



16







The following table reflects
certain information regarding the tender offers that we have conducted to date:



|For the Three Months Ended |  | Repurchase Date    |  | SharesRepurchased |        |  | Percent ofSharesTendered thatwereRepurchased |  |     | RepurchasePrice PerShare |  |   | AggregateConsiderationforRepurchasedShares ('000s) | 
|-------------------------- |  | ------------------ |  | ----------------- | ------ |  | -------------------------------------------- |  | --- | ------------------------ |  | - | -------------------------------------------------- | 
|December 13, 2013          |  | December 12, 2013  |  |                   | 548    |  |                                              |  | 100 | %                        |  | $ | 9.135                                              | 
|March 31, 2014             |  | March 14, 2014     |  |                   | 550    |  |                                              |  | 100 | %                        |  | $ | 9.135                                              | 
|June 30, 2014              |  | June 27, 2014      |  |                   | 34,025 |  |                                              |  | 100 | %                        |  | $ | 9.135                                              | 
|September 30, 2014         |  | September 30, 2014 |  |                   | 38,482 |  |                                              |  | 100 | %                        |  | $ | 9.000                                              | 



Our quarterly repurchases
will be conducted on such terms as may be determined by our board of directors in its complete and absolute discretion unless,
in the judgment of the independent directors of our board of directors, such repurchases would not be in the best interests of
our stockholders or would violate applicable law. We will conduct such repurchase offers in accordance with the requirements of
Rule 13e-4 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the 1940 Act. In months in which we repurchase
shares, we will conduct repurchases on the same date that we hold our first semi-monthly closing for the sale of shares in this
offering. Any offer to repurchase shares will be conducted solely through tender offer materials mailed to each stockholder.





Note 9.  Distributions



Subject to our board of
trustees' discretion and applicable legal restrictions, we authorize and declare ordinary cash distributions on a semi-monthly
basis and pay such distributions on a semi-monthly basis. Any distributions to our shareholders will be declared out of assets
legally available for distribution. We may fund our cash distributions to shareholders from any sources of funds available to us,
including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets,
non-capital gains proceeds from the sale of assets, and dividends or other distributions paid to us on account of preferred and
common equity investments in portfolio companies. We have not established limits on the amount of funds we may use from available
sources to make distributions.



When we commenced operations,
we initiated a policy of declaring semi-monthly distributions at an annual distribution rate of 7.35% per annum of our offering
price. We have authorized, declared and paid distributions to our shareholders at that rate on a semi-monthly basis since July
2012. Our distributions historically have not been based on our investment performance. Prior to September 2013, our
distributions were supported by our Manager in the form of operating expense support payments to us, and a portion of our distributions
constituted a return of capital. Since September 2013, we have not had an expense support agreement with our Manager and
as a result a greater portion of our distributions have constituted a return of capital. A return of capital generally is a
return of your investment rather than a return of earnings or gains derived from our investment activities.



As of September 30, 2014,
the Fund has accrued $0.1 million in stockholder distributions that were unpaid. All amounts with record date in September 2014
and paid in October 2014 have been accrued in the September 30, 2014 financial statements. As of December 31, 2013, the Fund has
accrued $0.1 million in stockholder distributions that were unpaid. All amounts with record dates in December 2013 and paid in
January 2014 have been accrued in the December 31, 2013 financial statements.



The following tables reflect
the distributions per share paid or payable in cash or with the distribution reinvestment plan (“DRIP”) on the Fund’s
common stock to date (dollars in thousands except per share amounts), as well as the source of the distributions:



Source of Distribution by Cash vs. DRIP:



|                                      |  |           |         |  | Net        |  |       | Realized    |  |  |           |  |  |       |       |  |         |  |       |      | 
|------------------------------------- |  | --------- | ------- |  | ---------- |  | ----- | ----------- |  |  | --------- |  |  | ----- | ----- |  | ------- |  | ----- | ---- | 
|                                      |  |           |         |  | Investment |  |       | Gain From   |  |  | Return of |  |  |       |       |  | Paid in |  |       |      | 
|Period                                |  | Per Share |         |  | Income     |  |       | Investments |  |  | Capital   |  |  | Total |       |  | Cash    |  |       | DRIP | 
|July 12, 2012 - September 30, 2012    |  | $         | 0.18375 |  |            |  | 32    |             |  |  | -         |  |  |       | 18    |  |         |  | 50    |      | 
|October 1, 2012 - December 31, 2012 * |  | $         | 0.26075 |  |            |  | 118   |             |  |  | -         |  |  |       | 82    |  |         |  | 200   |      | 
|January 1, 2013 - March 31, 2013 *    |  | $         | 0.26259 |  |            |  | 247   |             |  |  | 47        |  |  |       | 75    |  |         |  | 369   |      | 
|April 1, 2013 - June 30, 2013         |  | $         | 0.18650 |  |            |  | 235   |             |  |  | 43        |  |  |       | 27    |  |         |  | 305   |      | 
|July 1, 2013 - September 30, 2013     |  | $         | 0.18650 |  |            |  | 244   |             |  |  | 47        |  |  |       | 183   |  |         |  | 474   |      | 
|October 1, 2013 - December 31, 2013   |  | $         | 0.18650 |  |            |  | 72    |             |  |  | 258       |  |  |       | 219   |  |         |  | 549   |      | 
|January 1, 2014 - March 31, 2014      |  | $         | 0.18650 |  |            |  | 168   |             |  |  | 85        |  |  |       | 379   |  |         |  | 632   |      | 
|April 1, 2014 - June 30, 2014         |  | $         | 0.18650 |  |            |  | 372   |             |  |  | -         |  |  |       | 382   |  |         |  | 754   |      | 
|July 1, 2014 - September 30, 2014     |  | $         | 0.18467 |  |            |  | 135   |             |  |  | 29        |  |  |       | 644   |  |         |  | 808   |      | 
|TOTAL                                 |  |           |         |  |            |  | 1,623 |             |  |  | 509       |  |  |       | 2,009 |  |         |  | 4,141 |      | 



* Includes a special distribution of
$0.077 per share.



17









The following table shows
the percentage of our distributions which have been funded from net investment income, realized capital gains and paid in capital
since the inception of operations:



Percentage of Distributions by Source:



|                                      |  |           |          |  | Net        |  |    | Realized    |  |  |           |  
|------------------------------------- |  | --------- | -------- |  | ---------- |  | -- | ----------- |  |  | --------- | -
|                                      |  |           |          |  | Investment |  |    | Gain From   |  |  | Return of |  
|Period                                |  | Per Share |          |  | Income     |  |    | Investments |  |  | Capital   |  
|July 12, 2012 - September 30, 2012    |  | $         | 0.183750 |  |            |  | 64 | %           |  |  | 0         | %
|October 1, 2012 - December 31, 2012 * |  |           | 0.260750 |  |            |  | 59 | %           |  |  | 0         | %
|January 1, 2013 - March 31. 2013 *    |  |           | 0.262586 |  |            |  | 67 | %           |  |  | 13        | %
|April 1, 2013 - June 30, 2013         |  |           | 0.186504 |  |            |  | 77 | %           |  |  | 14        | %
|July 1, 2013 - September 30, 2013     |  |           | 0.186504 |  |            |  | 51 | %           |  |  | 10        | %
|October 1, 2013 - December 31, 2013   |  |           | 0.186504 |  |            |  | 13 | %           |  |  | 47        | %
|January 1, 2014 - March 31, 2014      |  |           | 0.186504 |  |            |  | 27 | %           |  |  | 13        | %
|April 1, 2014 - June 30, 2014         |  |           | 0.186504 |  |            |  | 49 | %           |  |  | 0         | %
|July 1, 2014  - September 30, 2014    |  |           | 0.184668 |  |            |  | 17 | %           |  |  | 3         | %



* Includes a special distribution of $0.077
per share.



The following table reflects
the sources of the distributions on a tax basis that the Company has paid on its common stock (dollars in thousands) during the
fiscal years ended December 31, 2012 and 2013, and the nine months ended September 30, 2014:



|                                         |  | Nine months ended  |       |  | Year ended        |  |       | Year ended        | 
|---------------------------------------- |  | ------------------ | ----- |  | ----------------- |  | ----- | ----------------- | 
|Source of Distributions:                 |  | September 30, 2014 |       |  | December 31, 2013 |  |       | December 31, 2012 | 
|                                         |  | (Restated)         |       |  | (Restated)        |  |       | (Restated)        | 
|Distributions from Net investment income |  | $                  | 675   |  |                   |  | 30.7  | %                 | 
|Distributions from Realized Gains        |  |                    | 114   |  |                   |  | 5.2   | %                 | 
|Distributions from Paid In Capital       |  |                    | 1,405 |  |                   |  | 64.1  | %                 | 
|Total                                    |  | $                  | 2,194 |  |                   |  | 100.0 | %                 | 



There were no distributions
paid with borrowings, non-capital gain proceeds from sale of assets, distribution on account of preferred and common equity or
expense reimbursement from sponsor.



We expect to continue paying
distributions at the same distribution rate, and that a substantial part of those distributions will constitute a return of capital
for the foreseeable future. Our distributions will continue to constitute return of capital until our net investment income is
sufficient to support our distribution rate, which will probably not occur until our Manager enters into an expense support agreement
with us, or our assets increase enough to lower our expense ratio, which we do not expect to occur until we have more than $100
million in assets.



We are in a fund raising stage. As such, we
incur offering expenses of 1.5% of the gross offering proceeds. The chart below shows the percentages of distributions from Net
Investment Income excluding offering costs:



|                |  | OfferingExpenses |     |  | Net InvestmentIncomeexcludingoffering costs |   |       | % Distributionfrom NetInvestmentIncome excludingoffering costs |  |  | % Distributionsfrom RealizedGains excludingoffering costs |   |  | % Distributionsfrom Paid InCapital excludingoffering costs |   
|--------------- |  | ---------------- | --- |  | ------------------------------------------- | - | ----- | -------------------------------------------------------------- |  |  | --------------------------------------------------------- | - |  | ---------------------------------------------------------- | --
|2014 (Restated) |  | $                | 263 |  |                                             | $ | 938   |                                                                |  |  | 43                                                        | % |  |                                                            | 5 
|2013 (Restated) |  | $                | 322 |  |                                             | $ | 1,120 |                                                                |  |  | 66                                                        | % |  |                                                            | 23
|2012 (Restated) |  | $                | 142 |  |                                             | $ | 292   |                                                                |  |  | 100                                                       | % |  |                                                            | 0 



18







Note 10.  Financial Highlights



The following is a schedule of financial highlights
for the nine months ended September 30, 2014 and 2013:



|                                                                     |  | For the ninemonthsendedSeptember30, 2014 |           |    | For the ninemonths endedSeptember30, 2013 |  
|-------------------------------------------------------------------- |  | ---------------------------------------- | --------- | -- | ----------------------------------------- | -
|                                                                     |  | (Restated)                               |           |    |                                           |  
|Per share data:                                                      |  |                                          |           |    |                                           |  
|Net asset value, beginning of period                                 |  | $                                        | 8.70      |    |                                           | $
|                                                                     |  |                                          |           |    |                                           |  
|Results of operations (1)                                            |  |                                          |           |    |                                           |  
|Net investment income                                                |  |                                          | 0.17      |    |                                           |  
|Net realized gain on investments                                     |  |                                          | 0.03      |    |                                           |  
|Net unrealized loss on investments                                   |  |                                          | (0.92     | )  |                                           |  
|Net increase (decrease) in net assets resulting from operations      |  |                                          | (0.72     | )  |                                           |  
|                                                                     |  |                                          |           |    |                                           |  
|Stockholder distributions (2)                                        |  |                                          |           |    |                                           |  
|Distributions from net investment income                             |  |                                          | (0.17     | )  |                                           |  
|Distributions from realized gains                                    |  |                                          | (0.03     | )  |                                           |  
|Distributions from capital                                           |  |                                          | (0.35     | )  |                                           |  
|Net decrease in net assets resulting from stockholder distributions  |  |                                          | (0.55     | )  |                                           |  
|                                                                     |  |                                          |           |    |                                           |  
|Capital share transactions                                           |  |                                          |           |    |                                           |  
|Impact from issuance of common stock (3)                             |  |                                          | 0.38      |    |                                           |  
|Net increase in net assets resulting from capital share transactions |  |                                          | 0.38      |    |                                           |  
|Net asset value, end of period                                       |  | $                                        | 7.81      |    |                                           | $
|Shares outstanding at end of period                                  |  |                                          | 4,909,423 |    |                                           |  
|Total return (5)                                                     |  |                                          | (4.88     | )% |                                           |  
|Ratio/Supplemental data:                                             |  |                                          |           |    |                                           |  
|Net assets, end of period (in thousands)                             |  | $                                        | 38,342    |    |                                           | $
|Average net assets (in thousands)                                    |  | $                                        | 33,370    |    |                                           | $
|Ratio of net investment income to average net assets (4)(7)          |  |                                          | 2.70      | %  |                                           |  
|Ratio of operating expenses to average net assets (4)(7)             |  |                                          | 6.94      | %  |                                           |  
|Ratio of incentive fees to average net assets (7)                    |  |                                          | -         | %  |                                           |  
|Ratio of expenses reimbursed to average net assets (7)               |  |                                          | -         | %  |                                           |  
|Portfolio turnover ratio (6)                                         |  |                                          | 37.10     | %  |                                           |  



|(1) | The per share amounts were derived by using the weighted average shares outstanding during the period. There was no expense waiver and reimbursement for the nine months ended September 30, 2014. Net investment income per share excluding the expense reimbursements would have been $0.01 for the nine months ended September 30, 2013.                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The per share data for distributions reflects the actual amount of distributions declared per share during the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(3) | The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock in the Fund's continuous offering.                                                                                                                                                                                                                                                                                                                                                                                   
|(4) | The ratios are after giving effect to amounts reimbursed by the Manager under an expense reimbursement agreement. See “Note 5 – Related Party Transactions.” For the nine months ended September 30, 2014 there was no expense waiver and reimbursement. For the nine months ended September 30, 2013, excluding the expense reimbursement, the ratio of net investment income and operating expenses to average net assets would have been (1.11%) and 9.99%, respectively.                                                                                                  
|(5) | Total return is calculated assuming a purchase of shares at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the DRIP. For the nine months ended September 30, 2014 there was no expense reimbursement. The total return based on net asset value for the nine months ended September 30, 2013, includes the effect of the expense reimbursement which added 4.67% to the return.
|(6) | Portfolio turnover rate is calculated using the lesser of year-to-date sales or purchases over the average of the invested assets at fair value. Not annualized.                                                                                                                                                                                                                                                                                                                                                                                                              
|(7) | Ratios are annualized based on average net assets using current and prior 3 quarters net assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



19







Note 11.  Subsequent
Events



Management of the Fund has evaluated subsequent
events in the preparation of the Fund’s financial statements and has determined that no events require recognition or disclosure
in the financial statements except for the following:



From
October 1, 2014 to July 16, 2015, the Fund issued 1.3 million shares of common stock for gross proceeds of $12.4 million. The proceeds
were substantially invested in new debt securities.



On September 2, 2014, the
Fund was informed by Endeavour International Corporation (NYSE: ENDV) , the “company”, that it had decided not to pay
the coupon interest due on the 12% First Priority Notes, 3-1-2018 and 12% Second Priority Notes, 6-1-2018. At September 30, 2014,
the Fund held $0.5 million principal amount of 12% First Priority Notes with an amortized cost of $0.6 million, and $0.7 million
in 12% Second Priority Notes with an amortized cost of $0.7 million. Under the terms of the indentures, there was a thirty day
grace period during which the company had the right to make the interest payment and cure any potential event of default for non-payment.
Because the interest payments were not made during the grace period, an event of default occurred. On October 10, 2014, the company
announced its restructuring agreement for the notes. In connection therewith, the company and certain of its subsidiaries filed
a voluntary petition for relief under Chapter 11 of the Bankruptcy code. Pursuant to the agreement, the company’s debt will
be reduced by 43%. In consideration for the cancellation of debt, the Fund will receive 9.75% new notes for its 12% First Priority
Notes and new 3.5% convertible preferred shares for its 12% First Priority Notes and 12% Second Priority Notes.



On October 20, 2014, the
Fund accepted the voluntary corporate action exchange for the Education Management LLC 15.00%, 7/1/2018 multi coupon notes offered
at par. Of the options offered, the Fund chose the exchange in preferred shares and warrants for the full 869,582 par value.



On January 13, 2015, we received a mandatory
full call from Hutchinson Technology on the convertible note 8.5%, put date of January 1, 2026. We hold a par value position of
$858. The price will be par value and accrued interest with a redemption date of January 15, 2015. No action was required on behalf
of the fund. The notice was for informational purposes only.



On February 4, 2015, we received a mandatory
partial call from Central Garden Pet Company on the notes held at 8.25%, maturity date of March 1, 2018. We hold a par value position
of $1,400. Of this, $154 par value is called at a premium price of $102.063 per share with a redemption date of March 1, 2015.
No action was required on behalf of the fund. The notice was for informational purposes only.



During the second quarter of 2015, VII Peaks
repaid the outstanding balance of $138, along with the accrued interest of $15, resulting from offering costs paid by the Fund
that should have been borne by the Manager under the terms of our agreement with the Manager.



20







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



The following discussion
should be read in conjunction with the accompanying financial statements of VII Peaks Co-Optivist Income BDC II, Inc., and the
notes thereto. As used herein, the terms “we,” “our” and “us” refer to VII Peaks Co-Optivist
Income BDC II, Inc., a Maryland corporation and, as required by context to VII Peaks Capital, LLC (the “Manager”),
which serves as our investment adviser and administrator. We are externally managed by our Manager.



Forward-Looking Statements



This Form 10-Q/A includes
forward-looking statements that reflect our expectations and projections about our future results, performance, prospects and opportunities.
We may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,”
“expect,” “estimate,” “intend,” “should,” “would,” “could,”
“potentially,” or “may” or other words that convey uncertainty of future events or outcomes to identify
these forward-looking statements. Forward-looking statements in this Form 10-Q/A are subject to a number of risks and uncertainties,
some of which are beyond our control, including, among other things:



| | • | our ability to invest in discounted corporate debt and equity-linked debt securities of our target companies;
| | - | -------------------------------------------------------------------------------------------------------------



| | • | our ability to successfully employ our Co-Optivist TM approach in executing our investment strategy;
| | - | ----------------------------------------------------------------------------------------------------



| | • | a limited pool of prospective target businesses;
| | - | ------------------------------------------------



| | • | our ability to pay distributions on our shares of common stock;
| | - | ---------------------------------------------------------------



| | • | an economic downturn which could impair our target companies’ abilities to continue to operate, which could lead to the loss of some or all of our assets; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | changes in general economic or business conditions or economic or demographic trends in the United States.
| | - | ----------------------------------------------------------------------------------------------------------



Our actual results, performance,
prospects or opportunities could differ materially from those expressed in or implied by our forward-looking statements. In light
of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. These forward-looking
statements are made as of the date of this Form 10-Q/A. We undertake no obligation to publicly update or revise any forward-looking
statements after the date of this Form 10-Q/A, whether as a result of new information, future events or otherwise, except as required
by law. The forward-looking statements and projections contained in this Quarterly Report on Form 10-Q/A are excluded from the
safe harbor protection provided by Section 27A of the Securities Act of 1933.



Overview



We invest in discounted
corporate debt and equity-linked debt securities of public and private companies that trade on the secondary loan market for institutional
investors and provide distributions to investors. At the same time, we actively work with the target company’s management
to restructure the underlying securities and improve the liquidity position of the target company’s balance sheet. We employ
a proprietary “Co-Optivist” TM approach (“cooperative activism”, Co-Optivist TM is
a registered trademark of VII Peaks Capital, LLC and is being used with their permission) in executing our investment strategy,
which entails proactively engaging the target company management on average 24 months prior to a redemption event (typically a
put or maturity event) to create an opportunity for growth in the investments. Our strategy is not dependent on restructuring to
generate distributions. Capital appreciation on securities is generally not realized evenly over the holding period. In some instances
market prices for securities may continue to reflect a discount until a relatively short time period prior to a redemption event.
The potential capital gain typically occurs during the end of the holding period of a bond in our portfolio when securities are
either called by the company or exchanged to new securities during refinance. We have tendered certain debt securities well above
the market-traded deep discount.



Our investment objectives
are to generate current income and capital appreciation. We intend to meet our investment objectives by: (i) realizing income and
capital appreciation through the acquisition, management and orderly liquidation of corporate debt securities, (ii) making distributions
of available distributable cash to our shareholders, and (iii) preserving the capital investments of our shareholders. There can
be no assurance that any of these objectives will be achieved.



Our proprietary “Co-Optivist”
TM approach entails investment in the corporate debt and equity-linked debt securities of target companies, or Target
Investments, in conjunction with proactively engaging the target companies’ management. We acquire Target Investments whose
debt securities trade on the over-the-counter market for institutional loans at a discount to their par redemption value, and will
be subject to a “redemption event” within (on average) 24 months. We define a “redemption event” as a maturity
event or a put event (where investors in the target companies’ debt security can have a redemption right at a pre-determined
price). We hold such debt an average of 12 – 18 months, during which time we anticipate working actively with the
target companies’ management to effect and/or participate in a restructuring or exchange of the invested securities for new
securities.



21







We make target companies
that meet our investment criteria. The size of an individual investment will vary based on numerous factors. However, assuming
we raise the maximum offering amount of $750 million we expect to hold at least 50 investments, and we anticipate that the minimum
investment size will be approximately $250,000. We do not anticipate being heavily invested in any one industry, and generally,
we do not expect to invest in more than two different classes of debt of the same target company. We invest in debt and equity-linked
debt of target company with a minimum enterprise value of $200 million and whose debt and equity-linked debt is actively traded
in the secondary loan market. Our portfolio is predominantly composed of fixed-rate high-yield and equity-linked corporate debt
securities. However, we may also purchase senior secured corporate debt securities which may have variable interest rates. We currently
anticipate that the portion of our portfolio composed of variable rate corporate debt securities, if any, will not exceed 20%,
but we may increase that to 33% of our aggregate portfolio at the time of any purchase depending on market opportunities.



We offer our stockholders
the ability to receive distributions as well as the potential capital appreciation resulting from the restructuring of the debt
of our Target Investments. To the extent we have distributable income available we anticipate declaring distributions with a record
and payment date on a semi-monthly basis.



Between 2001 and 2008,
corporate debt levels and the supply of leverage offered by banks and other investors steadily increased. We believe a significant
amount of this debt will be subject to a redemption event prior to 2016. Many of the companies that have outstanding issues of
such debt have not been able to proactively refinance, creating a “refinancing wall” that we believe will create a
liquidity shortfall for many issuers. The value of the debt securities of these companies as reflected in prices quoted in the
secondary loan market, may be at a significant discount to par, and represent a premium yield to maturity reflective of these liquidity
concerns, creating the opportunity for us to identify and invest in the debt securities of select companies at attractive current
market valuations. We believe that our Co-Optivist TM approach can help our target companies achieve results that are
beneficial to the long-term value of their businesses, which will in turn, result in capital gains through capital appreciation,
or the exchange of invested securities into a current security or cash at a premium to its acquisition price. Our principals collectively
have experience in principal investing, debt securities and general capital markets, and we believe we are well-positioned to capitalize
on these opportunities.



Our investment activities
are managed by our Manager who is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Our
Manager is responsible for sourcing potential investments, conducting research on prospective investments, analyzing investment
opportunities, structuring our investments, and monitoring our investments and portfolio companies on an ongoing basis. Our Manager
is led by Gurpreet (Gurprit) S. Chandhoke, who also serves as our Chief Executive Officer, who has extensive experience in underwriting
and issuing debt products that include high-yield, bank debt and convertible debt and has acted as financial adviser to private
equity funds, venture capital firms and corporations in mergers and acquisitions, recapitalization and corporate finance transactions,
and has served as principal investor in private equity and leveraged buyout transactions.



Our Manager has an investment
committee that is responsible for reviewing, discussing and approving each investment opportunity we seek to pursue. Our investment
committee meets routinely to discuss new and existing opportunities and developments on current investments. Our investment committee
currently is led by Mr. Chandhoke, our Chief Executive Officer, with Stephen F. Shea, a Managing Partner of VII Peaks Capital,
LLC, and Bhavin Shah, Investment Committee Member, VII Peaks Capital, LLC.



Critical Accounting Policies



The financial statements
are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”),
which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related
to the valuation of portfolio securities. We base our estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation
of our financial statements.



Valuation of Portfolio Investments



The investment portfolio
is recorded on a trade date basis. We determine the net asset value of our investment portfolio each quarter. Securities that are
publicly-traded are valued at the reported closing price on the valuation date. Forty one of the forty two investments were valued
using the closing market price at period end September 30, 2014. The exception was the investment in Education Management LLC,
15%, July 1, 2018. The market did not have a sufficient amount of trades to use the quoted price for this position.



Securities that are not
publicly-traded are valued at fair value as determined in good faith by our board of directors. In connection with that determination,
our Manager prepares portfolio company valuations using relevant inputs, including, but not limited to, indicative dealer quotes,
values of like securities, the most recent portfolio company financial statements and forecasts, and valuations prepared by third-party
valuation services.



With respect to investments
for which market quotations are not readily available, we 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 members of our investment committee, with such valuation taking into account information received from our independent valuation firm, if applicable;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | preliminary valuation conclusions are then documented and discussed with the members of our board of directors; and
| | - | -------------------------------------------------------------------------------------------------------------------



| | • | the board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on various statistical and other factors, including the input and recommendation of members of our investment committee and any third-party valuation firm, if applicable.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



22







Investments are valued
utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other
relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business).
The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present
value amount (discounted) calculated based on an appropriate discount rate. The measurement is based on the net present value indicated
by current market expectations about those future amounts. In following these approaches, the types of factors that we may take
into account in fair value pricing our investments include, as relevant: available current market data, including relevant and
applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection
provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make
payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial
ratios of peer companies that are public, M&A comparables, the principal market and enterprise values, among other factors.



We have adopted Financial
Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 820, Fair Value Measurements and Disclosures
(formerly Statement of Financial Accounting Standards No. 157, Fair Value Measurements ), which defines fair value, establishes
a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about
fair value measurements.



ASC Topic 820 clarifies
that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability
in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous
market for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at
the measurement date, considered from the perspective of market participants. ASC Topic 820 provides a consistent definition of
fair value which focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over
entity-specific inputs. In addition, ASC Topic 820 provides a framework for measuring fair value and establishes a three-level
hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the
measurement date. The three levels of valuation hierarchy established by ASC Topic 820 are defined as follows:



Level 1:  Quoted
prices in active markets for identical assets or liabilities, accessible by the Fund at the measurement date.



Level 2:  Quoted prices
for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets
that are not active, or other observable inputs other than quoted prices.



Level 3:  Unobservable
inputs for the asset or liability.



In all cases, the level
in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest
level of input that is significant to the fair value measurement.



Revenue Recognition



We generate investment
income in the form of interest and fees earned on senior secured loans, senior secured notes, subordinated debt, senior unsecured
debt and collateralized securities in our portfolio. The level of income we receive is directly related to the balance of collectible
income producing investments multiplied by the weighted average yield of our investments. Coupon interest income is adjusted for
the amortization of premiums and accretion of discounts. We record interest income on an accrual basis to the extent that we expect
to collect such amounts.



For loans and debt securities
with contractual payment-in-kind (“PIK”) interest, which represents contractual interest accrued and added to the principal
balance, we generally will not accrue PIK interest for accounting purposes if the portfolio company valuation indicates that such
PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt securities for accounting purposes
if we have reason to doubt our ability to collect such interest. Original issue discounts, market discounts or premiums are accreted
or amortized using the effective interest method as interest income. We record prepayment premiums on loans and debt securities
as interest income. Dividend income, if any, is recognized on an accrual basis to the extent that we expect to collect such amount.



Our total interest income
was $0.7 million and $2.3 million for the three and nine months ended September 30, 2014, as compared to $0.5 million and $1.1
million for the three and nine months ended September 30, 2013, respectively. The increase is due to a larger note portfolio earning
interest in 2014 as compared to 2013. At September 30, 2014, the weighted average coupon yield was 10.1%, as compared to 11.1%
as of September 30, 2013. For the quarter ending September 30, 2014, four of the investments in the portfolio did not accrue interest
as the issuers were in default of the coupon payment for more than the thirty day grace period. These four are Suntech Power Holdings
Company, Ltd., 3%, 5/15/13, NII Capital Corp, 10%, 8/15/16, Endeavor International Corporation, 12%, 3/1/18 and Endeavor International
Corporation 12%, 6/1/18.



Expense Reimbursement



We entered into an expense
reimbursement agreement with our prior manager under which the prior manager agreed to reimburse us for certain U.S. GAAP compliant
expenses recognized on our quarterly financial statements for 2012, retroactive to the date of formation on August 3, 2011. In
2013, the expense reimbursement agreement was modified to exclude management fees and incentive fees payable to the prior manager
effective as of January 1, 2013. We recognized a receivable on our books for the amount due from the prior manager under the expense
reimbursement agreement, and the prior manager recognized a liability on its books in the same amount.



23







On August 20, 2013, we
terminated our investment management agreement with our prior manager, and entered into a new investment management agreement with
our current Manager. Our current Manager has not entered into an expense reimbursement agreement with us, but agreed to assume
the prior manager’s obligation to pay us the $1.3 million which had accrued under the prior manager’s expense reimbursement
agreement. In consideration for such assumption, we have agreed to pay our current Manager any amounts otherwise due our prior
manager for organization and offering expenses funded by our prior manager, subject to the limitation that such organization and
offering costs may only be reimbursed to the extent of 1.5% of offering proceeds.



During the nine months
ended September 30, 2014, our Manager paid in full the Due from Affiliate balance of $1.3 million.



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



We measure net realized
gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment,
without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment
penalties. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during
the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses
are realized. Consistent with the high yield bond market, the portfolio experienced a fair value reduction, with a net unrealized
depreciation on investments of $2.4 million for the three months ending September 30, 2014, and $3.7 million for the nine months
ending September 30, 2014.



Payment-in-Kind Interest



We may have investments
in our portfolio that contain a PIK interest provision. Any PIK interest will be added to the principal balance of such investments
and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. In order to maintain
our status as a regulated investment company (“RIC”), substantially all of this income must be paid out to stockholders
in the form of distributions, even if we have not collected any cash.



Organization and Offering Expenses



The Fund is a closed-end
fund with a continuous offering period. Under the investment advisory agreement between the Fund and the Manager, our Manager fronts
the cost of the organizational and offering expenses which are reimbursable by the Fund with up to 1.5% of the gross offering proceeds.
The Fund expenses organizational and offering costs as they become payable under the investment advisory agreement.



Federal Income Taxes



We have elected to be treated
for federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level
federal income taxes on any ordinary income or capital gains that we distribute to our shareholders from our tax earnings and profits.
To obtain and maintain our RIC tax treatment, we must meet, among other things, specified source-of-income and asset diversification
requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of
realized net long-term capital losses, if any.



Portfolio and Investment Activity



During the nine months
ended September 30, 2014, we made $23.3 million of investments in new portfolio companies and had $10.8 million in aggregate amount
of exits and repayments, resulting in net investments of $12.5 million for the period. During the nine months ended September 30,
2013, we made $19.8 million of investments in new portfolio companies and had $7.1 million in aggregate amount of exits and repayments,
resulting in net investments of $12.7 million for the period. As of September 30, 2014, we had one portfolio investment in default
with a fair value of $0.01 million which represented 0.02% of our portfolio.



As of September 30, 2014,
we have invested an aggregate of approximately $36.2 million in 42 investment positions in 35 portfolio companies. At September
30, 2014, the fair value of our investment positions was $34 million (excluding cash and including the accrued interest of $1.1
million). As of such date, our estimated gross annual portfolio current yield was 10.29% and gross annual portfolio yield to maturity
was 10.52% based on the purchase price of our investments. The average duration of our portfolio was approximately 2.60 years.
As of September 30, 2014, we have exited 22 portfolio companies in full and 8 partially for aggregate sales proceeds of $24.0 million.
As of September 30, 2014, we had one portfolio investment in default of payment of its par value at maturity date with a fair value
of $7,250 which represented 0.02% of our portfolio. As of September 30, 2014, in addition to the investment in maturity date default,
three additional investments had not paid coupon interest as due beyond the thirty day grace period. These investments were placed
in a nonaccrual status.



24







The following table presents our portfolio composition
based on fair value as of September 30, 2014:



|                                     |  | As of September 30, 2014     |      
|------------------------------------ |  | ---------------------------- | -----
|                                     |  | Percentage ofTotal Portfolio |      
|Investments – U.S. Bank money market |  |                              | 12.2 
|Senior Secured First Lien Debt       |  |                              | 19.6 
|Senior Secured Second Lien Debt      |  |                              | 12.8 
|Senior Unsecured Debt                |  |                              | 41.6 
|Senior Subordinated Debt             |  |                              | 13.8 
|Total                                |  |                              | 100.0



As of September 30, 2014, our investment
portfolio had a yield to maturity of 10.82%, and an average duration of 2.61 years.



The following table presents our portfolio composition
based on fair value as of December 31, 2013:



|                                     |  | As of December 31, 2013      |      
|------------------------------------ |  | ---------------------------- | -----
|                                     |  | Percentage ofTotal Portfolio |      
|Investments – U.S. Bank money market |  |                              | 6.6  
|Senior Secured First Lien Debt       |  |                              | 18.2 
|Senior Secured Second Lien Debt      |  |                              | 21.3 
|Senior Unsecured Debt                |  |                              | 30.0 
|Senior Subordinated Debt             |  |                              | 23.9 
|Total                                |  |                              | 100.0



As of December 31, 2013, our investment
portfolio had a yield to maturity of 11.16%, and an average duration of 2.36 years.



The following table shows the portfolio composition
by industry grouping at fair value as of September 30, 2014 (dollars in thousands):



|                                          |  | As of September 30, 2014 |       
|----------------------------------------- |  | ------------------------ | ------
|                                          |  | Investments atFair Value |       
|Investments - Money Market                |  | $                        | 4,561 
|Services: Consumer                        |  |                          | 4,514 
|Retail                                    |  |                          | 4,194 
|Media: Advertising, Printing & Publishing |  |                          | 4,182 
|Healthcare and Pharmaceuticals            |  |                          | 3,590 
|Energy: Oil & Gas                         |  |                          | 2,512 
|Consumer Goods: Durable                   |  |                          | 2,141 
|Metals & Mining                           |  |                          | 1,833 
|Aerospace and Defense                     |  |                          | 1,713 
|Telecommunications                        |  |                          | 1,566 
|Automobile                                |  |                          | 1,351 
|Environmental Industries                  |  |                          | 1,336 
|Media: Broadcasting & Subscription        |  |                          | 1,173 
|Hotel, Gaming & Leisure                   |  |                          | 841   
|High Tech Industries                      |  |                          | 826   
|Beverage, Food & Tobacco                  |  |                          | 578   
|Services: Business                        |  |                          | 549   
|Total                                     |  | $                        | 37,460



25







The following table shows the portfolio composition
by industry grouping at fair value as of December 31, 2013 (dollars in thousands):



|                                          |  | As of December 31, 2013 |       
|----------------------------------------- |  | ----------------------- | ------
|                                          |  | InvestmentsatFair Value |       
|Healthcare & Pharmaceuticals              |  | $                       | 3,160 
|Services: Business                        |  |                         | 3,015 
|Aerospace and Defense                     |  |                         | 2,616 
|Energy: Oil & Gas                         |  |                         | 2,604 
|Telecommunications                        |  |                         | 2,289 
|Investments – Money Market                |  |                         | 1,644 
|Media: Advertising, Printing & Publishing |  |                         | 1,541 
|Services: Consumer                        |  |                         | 1,282 
|Metals & Mining                           |  |                         | 1,222 
|High Tech Industries                      |  |                         | 1,158 
|Banking, Finance, Insurance & Real Estate |  |                         | 1,069 
|Retail                                    |  |                         | 968   
|Media: Broadcasting & Subscription        |  |                         | 875   
|Hotel, Gaming & Leisure                   |  |                         | 790   
|Beverage, Food & Tobacco                  |  |                         | 557   
|Environmental Industries                  |  |                         | 8     
|Total                                     |  | $                       | 24,798



Our fair value of total
investments was $37.5 million as of September 30, 2014 as compared to $24.8 million as of December 31, 2013. The portfolio increase
in the three and nine months ending September 30, 2014 is mainly due to invested proceeds from continuous investor closings. The
additional proceeds from investor closings in the three and nine months ending September 30, 2014 also led to further portfolio
diversification by industry, as compared to diversification as of December 31, 2013.



Results of Operations



The results of operations
are based on revenue less expenses, adjusted for the impact of the realized gain/loss and change in unrealized gain/loss on our
investment portfolio. To the extent that it is expected to be received, revenue is recognized on an accrual basis. Income is earned
as coupon interest adjusted for the amortization of premiums and accretion of discounts is recognized on the high-yield investments.
Expenses include professional services, management fees, administrative services, organizational and offering costs and other general
and administrative. Realized gains/losses are from investments sold or called at an advantageous price. The unrealized gain/loss
is the change in the market price on investments in the portfolio at period end, subject to significant fluctuation.



Operating results for the three and nine months
ended September 30, 2014 and 2013 are as follows (dollars in thousands):



|                                                                |  | For the threemonths endedSeptember 30,2014 |        |   | For the threemonths endedSeptember 30,2013 |  
|--------------------------------------------------------------- |  | ------------------------------------------ | ------ | - | ------------------------------------------ | -
|                                                                |  | (Restated)                                 |        |   |                                            |  
|Total investment income                                         |  | $                                          | 744    |   |                                            | $
|Total expenses, net                                             |  |                                            | 609    |   |                                            |  
|Net investment income                                           |  |                                            | 135    |   |                                            |  
|Net realized gains                                              |  |                                            | 28     |   |                                            |  
|Net unrealized depreciation                                     |  |                                            | (2,438 | ) |                                            |  
|Net increase (decrease) in net assets resulting from operations |  | $                                          | (2,275 | ) |                                            | $



|                                                                |  | For the ninemonths endedSeptember 30,2014 |        |   | For the ninemonths endedSeptember 30,2013 |  
|--------------------------------------------------------------- |  | ----------------------------------------- | ------ | - | ----------------------------------------- | -
|                                                                |  | (Restated)                                |        |   |                                           |  
|Total investment income                                         |  | $                                         | 2,405  |   |                                           | $
|Total expenses, net                                             |  |                                           | 1,730  |   |                                           |  
|Net investment income                                           |  |                                           | 675    |   |                                           |  
|Net realized gains                                              |  |                                           | 114    |   |                                           |  
|Net unrealized depreciation                                     |  |                                           | (3,656 | ) |                                           |  
|Net increase (decrease) in net assets resulting from operations |  | $                                         | (2,867 | ) |                                           | $



Revenues



We generated investment
income of $0.7 million and $2.4 million for the three and nine months ended September 30, 2014, as compared to $0.5 million and
$1.1 million for the three and nine months ended September 30, 2013. The nine months ended September 30, 2014 included a non-recurring
interest receivable in Other Income of $0.1 million. The interest resulted from the Due from Affiliate balance of $1.3 million
that was paid in full in during the nine months ended September 30, 2014.



26







Interest from investments
is in the form of interest and fees earned on senior secured loans, senior secured notes, subordinated debt, senior unsecured debt
and collateralized securities in our portfolio. The level of income we receive is directly related to the balance of collectible
income producing investments multiplied by the weighted average yield of our investments. We expect the dollar amount of interest
and any dividend income that we earn to increase as the size of our investment portfolio increases. The average balance of the
September 30, 2014 note portfolio was significantly higher than the September 30, 2013 balance, resulting in the increase in interest
income. For the quarter ending September 30, 2014, four of the investments in our portfolio were on nonaccrual status as a result
of the issuers being in default of the coupon payment for more than the thirty day grace period. These four are Suntech Power Holdings
Company, Ltd., 3%, 5/15/13; NII Capital Corp, 10%, 8/15/16; Endeavor International Corporation, 12%, 3/1/18; and Endeavor International
Corporation 12%, 6/1/18.



Since becoming operational
in the third quarter of 2012, we generate revenue primarily from the cash interest we collect on our debt investments and, to a
lesser extent, from the early termination fees that many of our debt investments require the borrower to pay. Going forward, we
may generate revenue in the form of commitment, origination, structuring or diligence fees. Any such fees will be generated in
connection with our investments and recognized as earned.



Expenses



The composition of our
operating expenses for the three and nine months ended September 30, 2014 and September 30, 2013 was as follows (dollars in thousands):



|                                                                   |  | For the threemonths endedSeptember 30,2014 |     |  | For the threemonths endedSeptember 30,2013 |  
|------------------------------------------------------------------ |  | ------------------------------------------ | --- |  | ------------------------------------------ | -
|                                                                   |  | (Restated)                                 |     |  |                                            |  
|Professional fees                                                  |  | $                                          | 67  |  |                                            | $
|Director fees                                                      |  |                                            | 10  |  |                                            |  
|Insurance                                                          |  |                                            | 24  |  |                                            |  
|Management fees                                                    |  |                                            | 193 |  |                                            |  
|Incentive fees                                                     |  |                                            | —   |  |                                            |  
|Administrative services                                            |  |                                            | 30  |  |                                            |  
|General and administrative expenses                                |  |                                            | 158 |  |                                            |  
|Offering expense                                                   |  |                                            | 127 |  |                                            |  
|Operating expenses before expense reimbursements                   |  |                                            | 609 |  |                                            |  
|Expense reimbursement                                              |  |                                            | —   |  |                                            |  
|Total operating expenses net of expense waivers and reimbursements |  | $                                          | 609 |  |                                            | $



|                                                                   |  | For the ninemonths endedSeptember 30,2014 |       |  | For the ninemonths endedSeptember 30,2013 |  
|------------------------------------------------------------------ |  | ----------------------------------------- | ----- |  | ----------------------------------------- | -
|                                                                   |  | (Restated)                                |       |  |                                           |  
|Professional fees                                                  |  | $                                         | 203   |  |                                           | $
|Director fees                                                      |  |                                           | 37    |  |                                           |  
|Insurance                                                          |  |                                           | 71    |  |                                           |  
|Management fees                                                    |  |                                           | 528   |  |                                           |  
|Incentive fees                                                     |  |                                           | —     |  |                                           |  
|Administrative services                                            |  |                                           | 54    |  |                                           |  
|General and administrative expenses                                |  |                                           | 574   |  |                                           |  
|Offering expense                                                   |  |                                           | 263   |  |                                           |  
|Operating expenses before expense reimbursements                   |  |                                           | 1,730 |  |                                           |  
|Expense reimbursement                                              |  |                                           | —     |  |                                           |  
|Total operating expenses net of expense waivers and reimbursements |  | $                                         | 1,730 |  |                                           | $



For the nine months ended
September 30, 2014 and September 30, 2013, our operating expenses before expense reimbursement were $1.7 million and $1.2 million,
respectively. The rise in expenses for the nine months ended September 30, 2014 as compared to the nine months ended September
30, 2013 was due to higher management fees, administrative services, offering expense and general and administrative in 2014, offset
with a reduction in professional fees. Larger assets under management led to the growth in management fees, and an increase in
transfer agent expense, captured in the general and administrative category. Travel was also a component of the increase in 2014,
as compared to the same period in 2013, as part of general and administrative expense above. Administrative services include the
costs outlined in the Administration Agreement, with more allocation and direct charges in 2014 than 2013. The amount of offering
costs is directly related to the gross offering price of shares sold in the period. Professional fees were lower in 2014, as less
legal and audit support was needed.



27







Expense Reimbursement



We entered into an expense
reimbursement agreement with our prior manager under which the prior manager agreed to reimburse us for all U.S. GAAP compliant
expenses recognized on our quarterly financial statements for 2012, retroactive to the date of formation on August 3, 2011. In
2013, the expense reimbursement agreement was modified to exclude management fees and incentive fees payable to the Manager effective
as of January 1, 2013. We recognized a receivable on our books for the amount due from the prior manager under the expense reimbursement
agreement, and the prior manager recognized a liability on its books in the same amount. Our prior manager was obligated to reimburse
us for $0.8 million in the nine months ended September 30, 2013.



On August 20, 2013, we
terminated our investment management agreement and expense reimbursement agreement with our prior manager, and entered into a new
investment management agreement with our current Manager. Our current Manager has not entered into an expense reimbursement agreement
with us, but agreed to assume the prior manager’s obligation to pay us $1.3 million which had accrued under the prior manager’s
expense reimbursement agreement. In consideration for such assumption, we have agreed to pay our current Manager any amounts otherwise
due our prior manager for organization and offering expenses funded by our prior manager, subject to the limitation that such organization
and offering costs may only be reimbursed to the extent of 1.5% of offering proceeds.



During the nine months ended September 30, 2014,
our Manager paid in full the Due from Affiliate balance of $1.3 million. In addition, during the nine months ended September 30,
2014, we accrued $0.1 million of interest on such amount at the rate of 7.35% per annum.



Net Investment Income



Our net investment income
totaled $0.1 million and $0.7 million for the three and nine months ended September 30, 2014, respectively. The balance of our
net investment income was attributable to investment income less operating expenses for the period. For the three and nine months
ended September 30, 2014, total investment income was $0.7 million and $2.4 million, respectively. For the nine months ended September
30, 2014, the Total Investment Income includes $0.1 million of nonrecurring interest, captured in other income.



Our net investment income
totaled $0.2 million and $0.6 million for the three and nine months ended September 30, 2013, respectively. Of our net investment
income, $0.2 million and $0.8 million for the three and nine months ended September 30, 2013, respectively, was attributable to
expense reimbursements by our prior manager, and the balance was attributable to investment income less operating expenses for
the period. For the three and nine months ended September 30, 2013, total investment income was $0.5 million and $1.1 million,
respectively.



The increase in net investment
income in the three months ending September 30, 2014 as compared to the three months ending September 30, 2013 is due to a higher
earning asset average balance in the investment portfolio. For the three and nine months ended September 30, 2014, total expenses
before expense reimbursements were $0.6 million and $1.7 million, respectively. For the three and nine months ended September 30,
2013, total expenses before expense reimbursements were $0.5 million and $1.2 million, respectively.



Net Realized Gains or Losses from Investments



For the three and nine
months ended September 30, 2014, we had $3.5 million and $10.8 million of sales and principal repayments, resulting in $0.03 million
and $0.1 million of realized gains, respectively. For the three and nine months ended September 30, 2013, we had $1.0 million and
$7.0 million of sales and principal repayments, resulting in $0.05 million and $0.1 million of realized gains.



Net Change in Unrealized Appreciation or Depreciation on Investments



For the three and nine
months ended September 30, 2014, we had $2.4 million and $3.7 million of unrealized depreciation, respectively. For the three and
nine months ended September 30, 2013, we had $0.1 million and $0.01 million of unrealized depreciation. The increase in unrealized
depreciation during fiscal 2014 was due to two main factors. First, the high yield corporate bond market declined overall due to
a variety of macro factors, including the announcement of the end of Quantitative Easing by the Federal Reserve, concerns about
the Chinese and European economies, and worries about the economic effect of various global conflicts, particularly in Ukraine
and the Middle East. For example, the BofA Merrill Lynch U.S. High Yield Master II Index total return declined 3.34% and 0.93%
(including interest and dividends on securities) during the three and nine months ending September 30, 2014, respectively.



In addition, we encountered
greater than average declines in certain positions that were caused by conditions unique to the company or industry. In particular,
we had a number of positions that either initiated a restructuring of their indebtedness (either in Chapter 11 bankruptcy or prepackaged
bankruptcy) or announced that they were considering a restructuring. Such announcements generally reduce liquidity in the secondary
market creating greater mispricing in underlying bonds. Until the bankruptcy or other restructuring process is complete, it becomes
difficult to ascertain whether some of these positions will result in loss of principal or full recovery of principal given their
position in the capital structure of the issuer and the underlying asset values. Generally, we expect much higher recoveries or
full payment for senior secured first lien type bonds, as compared to senior secured second-lien or unsecured bonds for defaulted
bonds.



28







Changes in Net Assets from Operations



For the three and nine
months ended September 30, 2014, we recorded a net decrease in net assets resulting from operations of $2.3 million and $2.9 million,
respectively. This decrease is due to the reduction in fair value of our investment portfolio. Consistent with the high yield bond
market, the portfolio experienced a market value reduction, with a net unrealized depreciation on investments of $2.4 million for
the three months ending September 30, 2014, and $3.7 million for the nine months ending September 30, 2014. Based on 4,365,342
and 3,962,809 weighted average common shares outstanding for the three and nine months ended September 30, 2014, respectively,
our per share net decrease in net assets resulting from operations was $0.52 and $0.72, respectively.



Liquidity and Capital Resources



We generate cash primarily
from the net proceeds of our ongoing continuous public offering and from cash flows from interest and dividends earned from our
investments as well as principal repayments and proceeds from sales of our investments. On July 10, 2012, we satisfied our minimum
offering requirement of raising gross offering proceeds in excess of $1.0 million from persons who are not affiliated with us or
our Manager, and commenced operations. As of September 30, 2014, we issued 5.0 million shares of common stock, including 0.2 million
shares under our distribution reinvestment plan (“DRIP”) and 0.07 million shares redeemed under our tender offer, Gross
proceeds from our issuance total $50.0 million, including $1.5 million under our distribution reinvestment plan (“DRIP”)
and $0.7 in tender offer redemption shares.



We currently sell our shares
on a continuous basis. In the three months ending September 30, 2014, we reduced our current offering price from $10.15 to $10.00.
To the extent that our net asset value per share increases, we will sell at a price necessary to ensure that our shares are not
sold at a price, after deduction of selling commissions and dealer manager fees, that is below our net asset value per share.



Prior to investing in debt
securities, we invest the net proceeds from our continuous offering primarily in money market funds that invest in U.S. government
securities and high-quality debt instruments maturing in one year or less from the time of investment. As of September 30, 2014
and December 31, 2013, we had $4.6 million and $1.6 million, respectively, invested in money market investments pending investment
in debt instruments.



For the nine months ended
September 30, 2014, we experienced a net increase in money market investments of $3.0 million. For the nine months ended September
30, 2014, approximately $13.1 million was generated from our financing activities, which primarily consisted of $15.2 million in
net offering proceeds received, offset by $1.4 million in distributions. We used approximately $13.1 million of cash in our operating
activities. Also, we received proceeds from the sale of, repayment of and principal payments on portfolio debt investments of $10.8
million, offset by the purchase of new portfolio debt investments of $23.2 million.



We do not expect to borrow
funds during the following four quarters to make investments. In the future, however, if the market for debt financing presents
attractively priced debt financing opportunities, or if our board of directors determines that leveraging our portfolio would be
in our best interests and the best interests of our shareholders, we may decide to borrow funds to make investments. We do not
currently anticipate issuing any preferred shares.



Distributions



Subject to our board of
trustees' discretion and applicable legal restrictions, we authorize and declare ordinary cash distributions on a semi-monthly
basis and pay such distributions on a semi-monthly basis. Any distributions to our shareholders will be declared out of assets
legally available for distribution. We may fund our cash distributions to shareholders from any sources of funds available to us,
including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets,
non-capital gains proceeds from the sale of assets, and dividends or other distributions paid to us on account of preferred and
common equity investments in portfolio companies. We have not established limits on the amount of funds we may use from available
sources to make distributions.



When we commenced operations,
we initiated a policy of declaring semi-monthly distributions at an annual distribution rate of 7.35% per annum of our offering
price. We have authorized, declared and paid distributions to our shareholders at that rate on a semi-monthly basis since July
2012. Our distributions historically have not been based on our investment performance. Prior to September 2013, our distributions
were supported by our Manager in the form of operating expense support payments to us, and a portion of our distributions constituted
a return of capital. Since September 2013, we have not had an expense support agreement with our Manager and as a result a greater
portion of our distributions have constituted a return of capital. A return of capital generally is a return of your investment
rather than a return of earnings or gains derived from our investment activities constitutes the return of capital previously paid
to us for shares of our common stock.



The following table shows
the percentage of our distributions which have been funded from net investment income, realized capital gains and paid in capital
since the inception of operations:



|                                     |  |           |         |  | Net        |  |    | Realized    |  |  |           |  
|------------------------------------ |  | --------- | ------- |  | ---------- |  | -- | ----------- |  |  | --------- | -
|                                     |  |           |         |  | Investment |  |    | Gain From   |  |  | Return of |  
|Period                               |  | Per Share |         |  | Income     |  |    | Investments |  |  | Capital   |  
|July 12, 2012 - September 30, 2012   |  | $         | 0.18375 |  |            |  | 64 | %           |  |  | 0         | %
|October 1, 2012 - December 31, 2012* |  |           | 0.26075 |  |            |  | 59 | %           |  |  | 0         | %
|January 1, 2013 - March 31, 2013 *   |  |           | 0.26259 |  |            |  | 67 | %           |  |  | 13        | %
|April 1, 2013 - June 30, 2013        |  |           | 0.18650 |  |            |  | 77 | %           |  |  | 14        | %
|July 1, 2013 - September 30, 2013    |  |           | 0.18650 |  |            |  | 51 | %           |  |  | 10        | %
|October 1, 2013 - December 31, 2013  |  |           | 0.18650 |  |            |  | 13 | %           |  |  | 47        | %
|January 1, 2014 - March 31, 2014     |  |           | 0.18650 |  |            |  | 27 | %           |  |  | 13        | %
|April 1, 2014 - June 30, 2014        |  |           | 0.18650 |  |            |  | 49 | %           |  |  | 0         | %
|July 1, 2014  - September 30, 2014   |  |           | 0.18467 |  |            |  | 17 | %           |  |  | 3         | %



(*) Includes a special distribution of $0.077
per share.



29







We expect to continue making
distributions at the same distribution rate unless our results of operations, our general financial condition, general economic
conditions, or other factors prohibit us from doing so. From time to time, but not less than quarterly, we review our accounts
to determine whether distributions to our shareholders are appropriate. There can be no assurance that we will be able to sustain
distributions at any particular level.



Each year a statement on
Internal Revenue Service Form 1099-DIV (or such successor form) identifying the source of the distribution (i.e., paid from ordinary
income, paid from net capital gain on the sale of securities, or a return of capital) will be mailed to our shareholders. We
expect that our distributions will continue to constitute a return of capital until our net investment income is sufficient to
support our distribution rate, which will probably not occur until our Manager enters into an expense support agreement with us,
or our assets increase enough to lower our expense ratio, which we do not expect to occur until we have more than $100 million
in assets, neither of which may ever occur. As a result, for the foreseeable future, a portion of the distributions we make
will represent a return of capital for tax purposes. The tax basis of shares must be reduced by the amount of any return of capital
distributions, which will result in an increase in the amount of any taxable gain (or a reduction in any deductible loss) on the
sale of shares.



The determination of the
tax attributes of our distributions is made annually as of the end of our fiscal year based upon our taxable income for the full
year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of
the actual tax attributes of our distributions for a full year. The actual tax characteristics of distributions to shareholders
are reported to shareholders annually on a Form 1099-DIV.



The following table reflects
the sources of the cash distributions on a tax basis that the Company has paid on its common stock (dollars in thousands) during
the fiscal years ended December 31, 2013 and 2012:



|                                         |  | Year ended        |       |  | Year ended        | 
|---------------------------------------- |  | ----------------- | ----- |  | ----------------- | 
|Source of Distributions:                 |  | December 31, 2013 |       |  | December 31, 2012 | 
|                                         |  | (Restated)        |       |  | (Restated)        | 
|Distributions from net investment income |  | $                 | 798   |  |                   | 
|Distributions from realized gains        |  |                   | 395   |  |                   | 
|Distributions from paid In capital       |  |                   | 504   |  |                   | 
|Total                                    |  | $                 | 1,697 |  |                   | 



Distribution Reinvestment Plan



We have adopted an “opt-in”
DRIP pursuant to which shareholders may elect to have the full amount of their cash distributions reinvested in additional shares
of our common stock. If shareholders wish to receive their distribution in cash, no action will be required on their part to do
so. There will be no selling commissions, dealer manager fees or other sales charges to shareholders if, they elect to participate
in the DRIP. We will pay the plan administrator’s fees under the plan. Shareholders distribution amount will purchase shares
at 95% of the price that the shares are offered pursuant to the effective registration statement of the public offering. Shares
issued pursuant to our DRIP will have the same voting rights as our shares of common stock offered pursuant to our prospectus.



We are in a fund raising stage. As such, we
incur offering expenses of 1.5% of the gross offering proceeds. The chart below shows the percentages of distributions from Net
Investment Income excluding offering costs:



|                |  | OfferingExpenses |     |  | Net 
InvestmentIncomeexcludingoffering costs |   |       | % Distributionfrom NetInvestmentIncomeexcludingoffering costs |  |  | % Distributionsfrom RealizedGains excludingoffering costs |   |  | % Distributionsfrom Paid InCapital excludingoffering costs |   
|--------------- |  | ---------------- | --- |  | -------------------------------------------- | - | ----- | ------------------------------------------------------------- |  |  | --------------------------------------------------------- | - |  | ---------------------------------------------------------- | --
|2014 (Restated) |  | $                | 263 |  |                                              | $ | 938   |                                                               |  |  | 43                                                        | % |  |                                                            | 5 
|2013 (Restated) |  | $                | 322 |  |                                              | $ | 1,120 |                                                               |  |  | 66                                                        | % |  |                                                            | 23
|2012 (Restated) |  | $                | 142 |  |                                              | $ | 292   |                                                               |  |  | 100                                                       | % |  |                                                            | 0 



30







Election as a RIC



We elected to be treated
as a RIC under Subchapter M of the Code beginning with the taxable year ended December 31, 2012. As a RIC, we generally will not
have to pay corporate-level U.S. federal income taxes on any income that we distribute to our stockholders from our tax earnings
and profits. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements.
In addition, in order to obtain RIC tax treatment, we must distribute to our stockholders, for each taxable year, at least 90%
of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of
realized net short-term capital gain over realized net long-term capital loss, or the annual distribution requirement. Even if
we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax on our undistributed taxable income
and could be subject to U.S. federal excise, state, local and foreign taxes.



Related-Party Transactions and Agreements



We have entered into agreements
with the Manager, whereby we pay certain fees and reimbursements. These include payments to our Manager for reimbursement of organization
and offering costs. In addition, we make payments for certain services that include, but are not limited to, the identification,
execution, and management of our investments and also the management of our day-to-day operations provided to us by our Manager,
pursuant to various agreements that we have entered into. See Note 4 to the financial statements included elsewhere in this quarterly
report on Form 10-Q/A for additional information regarding such contractual obligations.



Conflicts of interest between
us and the various roles, activities and duties of the Manager and its affiliates may occur from time to time. The Manager, its
officers and other affiliates may act as a manager or general partner of other private or public entities, some of whom may have
the same or a similar investment objective as us. As a result, conflicts of interest between us and the other activities of the
Manager and its affiliates may occur from time to time. None of the agreements or arrangements, including those relating to compensation,
between us, the Manager or their affiliates, is the result of arm’s-length negotiations. As a result, there may be conflicts
between us, on the one hand, and our Manager, including members of its management team, on the other, regarding the allocation
of resources to the management of our day-to-day activities.



The compensation we pay
to our Manager was not entered into on an arm’s-length basis with unaffiliated third parties. As a result, the form and amount
of such compensation may be less favorable to us than they might have been had they been entered into through arm’s-length
transactions with unaffiliated parties. See “Contractual Obligations” for a discussion of the investment advisory agreement
we have with the Manager.



Further, our officers are involved in other ventures, some of which
may compete with us for investment opportunities, including certain affiliated funds or managed accounts, and may be incentivized
to offer investment opportunities to such other ventures rather than to us which would make it more difficult to achieve our investment
objectives. In addition, the officers of VII Peaks may also be involved in other ventures, some of which may compete with us for
investment opportunities.



As a BDC, we are subject to certain
regulatory restrictions in making our investments. For example, we generally are not permitted to co-invest with certain entities
affiliated with our Manager in transactions originated by our Manager or its affiliates unless we obtain an exemptive order from
the SEC or co-invest alongside our Manager or its affiliates in accordance with existing regulatory guidance and our allocation
policy. Under existing regulatory guidance, we are permitted to, and may co-invest in syndicated deals and secondary loan market
transactions where price is the only negotiated point. We may seek exemptive relief from the SEC to engage in co-investment transactions
with our Manager and/or its affiliates. However, there can be no assurance that we will obtain such exemptive relief, if requested.
Even if we receive exemptive relief, neither our Manager nor its affiliates are obligated to offer us the right to participate
in any transactions originated by them. Prior to obtaining exemptive relief, we may co-invest alongside our Manager or its affiliates
only in accordance with existing regulatory guidance and our allocation policy.



Off-Balance Sheet Arrangements



We have no off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.



Item 3. Quantitative and Qualitative Disclosures about Market
Risk



We are subject to financial
market risks, and experienced a substantial unrealized depreciation in our portfolio values for the period ending September 30,
2014. We are also subject to interest rate and other market risks. Any investments we make that are denominated in a foreign currency
will be subject to risks associated with changes in currency exchange rates. These risks include the possibility of significant
fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity
in the secondary market. These risks will vary depending upon the currency or currencies involved.



We may hedge against interest
rate and currency exchange rate fluctuations by using standard hedging instruments such as futures, options and forward contracts
subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates,
they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments
with fixed interest rates.



Assuming that our current
balance sheet was to remain constant and no actions were taken to alter our existing interest rate sensitivity, a 100 basis point
move in interest rates up or down from their September 30, 2014 levels would result in an increase or decrease in net asset value
of $0.4 million or 0.99%.



31







Item 4. Controls and Procedures



Disclosure Controls and Procedures



In accordance with Rules 13a-15(b) and 15d-15(b)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls
and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this
Quarterly Report on Form 10-Q/A and determined that the disclosure controls and procedure are effective.



Change in Internal Control over Financial
Reporting



No change occurred in our
internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter
ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. However, in 2015, we determined that a deficiency in internal control over financial reporting existed relating to the determination of offering expenses that should have been borne by our Fund manager instead of us, and reimbursed to our manager at the rate of 1.5% of gross offering proceeds in accordance with our investment management agreement with the Fund manager, and that the deficiency existed during the period covered by this report. In response, in 2015 we implemented additional controls whereby officers will map out financial statement line items to the relevant portions of the agreements with our Fund manager to ensure compliance and proper accounting for amounts due thereunder.



32







PART II



OTHER INFORMATION



Item 1. Legal Proceedings



Neither we nor our Manager
are currently subject to any material legal proceedings.



Item 1A. Risk Factors



The Fund hereby incorporates by reference the risk factors set forth in Form N-2, Amendment No. 8, filed with the Securities and Exchange Commission on March 30, 2015.



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



Not applicable.



Item 3. Defaults upon Senior Securities



Not applicable.



Item 4. Mine Safety Disclosures



Not applicable.



Item 5. Other Information



Not applicable.



Item 6. Exhibits



Listed below are the exhibits
which are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):



|ExhibitNumber |  | Description of Document                                                                                                                                                             
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              |  |                                                                                                                                                                                     
|31.1*         |  | Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.                                                                
|              |  |                                                                                                                                                                                     
|31.2*         |  | Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.                                                                
|              |  |                                                                                                                                                                                     
|32.1*         |  | Certification of Chief Executive Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              |  |                                                                                                                                                                                     
|32.2*         |  | Certification of Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*    Filed
herewith.



33







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.



|                    | VII Peaks Co-Optivist Income BDC II, Inc.
|------------------- | -----------------------------------------
|                    |                                          
|Date: July 16, 2015 | By                                       
|                    |                                          
|                    |                                          
|                    |                                          
|                    |                                          



|                    | VII Peaks Co-Optivist Income BDC II, Inc.
|------------------- | -----------------------------------------
|                    |                                          
|Date: July 16, 2015 | By                                       
|                    |                                          
|                    |                                          
|                    |                                          
|                    |                                          



34