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 March 31, 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 May 14, 2014 was 4,087,113.











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 three months ended
March 31, 2014 (the “Quarterly Period”), as originally filed with the Securities and Exchange Commission (the “SEC”)
on May 15, 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, May 15, 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
MARCH 31, 2014



TABLE OF CONTENTS



|           |                                                                                                    | Page
|---------- | -------------------------------------------------------------------------------------------------- | ----
|           |                                                                                                    |     
|PART I.    | FINANCIAL INFORMATION                                                                              | 1   
|           |                                                                                                    |     
|Item 1.    | Financial Statements                                                                               | 1   
|           |                                                                                                    |     
|           | Statements of Assets and Liabilities as of March 31, 2014 (unaudited) and December 31, 2013        | 1   
|           |                                                                                                    |     
|           | Statements of Operations for the three months ended March 31, 2014 and 2013 (unaudited)            | 2   
|           |                                                                                                    |     
|           | Statements of Changes in Net Assets for the three months ended March 31, 2014 and 2013 (unaudited) | 3   
|           |                                                                                                    |     
|           | Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (unaudited)            | 4   
|           |                                                                                                    |     
|           | Schedule of Investments as of March 31, 2014 (unaudited)                                           | 5   
|           |                                                                                                    |     
|           | Schedule of Investments as of December 31, 2013                                                    | 6   
|           |                                                                                                    |     
|           | Notes to Financial Statements (unaudited)                                                          | 7   
|           |                                                                                                    |     
|Item 2.    | Management’s Discussion and Analysis of Financial Condition and Results of Operations              | 17  
|           |                                                                                                    |     
|Item 3.    | Quantitative and Qualitative Disclosures About Market Risk                                         | 26  
|           |                                                                                                    |     
|Item 4.    | Controls and Procedures                                                                            | 26  
|           |                                                                                                    |     
|PART II.   | OTHER INFORMATION                                                                                  | 27  
|           |                                                                                                    |     
|Item 1.    | Legal Proceedings                                                                                  | 27  
|           |                                                                                                    |     
|Item 1A.   | Risk Factors                                                                                       | 27  
|           |                                                                                                    |     
|Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds                                        | 27  
|           |                                                                                                    |     
|Item 3.    | Defaults upon Senior Securities                                                                    | 27  
|           |                                                                                                    |     
|Item 4.    | Mine Safety Disclosures                                                                            | 27  
|           |                                                                                                    |     
|Item 5.    | Other Information                                                                                  | 27  
|           |                                                                                                    |     
|Item 6.    | Exhibits                                                                                           | 27  
|           |                                                                                                    |     
|Signatures |                                                                                                    | 28  











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         |       
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------
|                                                                                                                                      |  | March 31,2014 |       
|                                                                                                                                      |  | (Restated)    |       
|ASSETS                                                                                                                                |  |               |       
|                                                                                                                                      |  |               |       
|Investments, at fair value (amortized cost of $30,236 and $23,769, respectively)                                                      |  | $             | 29,355
|Investments, money market at fair value (cost of $2,503 and $1,644, respectively)                                                     |  |               | 2,503 
|Total investments, at fair value                                                                                                      |  | $             | 31,858
|Interest receivable                                                                                                                   |  |               | 857   
|Prepaid expenses                                                                                                                      |  |               | 41    
|Due from related party                                                                                                                |  |               | 1,432 
|Receivable for common stock purchased                                                                                                 |  |               | 996   
|Total assets                                                                                                                          |  | $             | 35,184
|                                                                                                                                      |  |               |       
|LIABILITIES                                                                                                                           |  |               |       
|Payable for unsettled trades                                                                                                          |  | $             | 1,030 
|Management fees payable                                                                                                               |  |               | 30    
|Accounts payable and accrued liabilities                                                                                              |  |               | 115   
|Stockholder distributions payable                                                                                                     |  |               | 119   
|Total liabilities                                                                                                                     |  | $             | 1,294 
|                                                                                                                                      |  |               |       
|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; 3,931,578 and 3,151,376 shares issued and outstanding, respectively |  |               | 4     
|Paid-in capital in excess of par value                                                                                                |  |               | 35,766
|Treasury stock at cost, 1,098 shares                                                                                                  |  |               | (11   
|Accumulated distribution in excess of net investment income                                                                           |  |               | (988  
|Net unrealized depreciation on investments                                                                                            |  |               | (881  
|Total net assets                                                                                                                      |  |               | 33,890
|Total liabilities and net assets                                                                                                      |  | $             | 35,184
|                                                                                                                                      |  |               |       
|Net asset value per share                                                                                                             |  | $             | 8.62  








(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.



1







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



STATEMENTS OF OPERATIONS

(in thousands, except share and per share
data)

(Unaudited)



|                                                                |  | For the Three MonthsEnded March 31, 2014 |           |   | For the Three MonthsEnded March 31, 2013 |  
|--------------------------------------------------------------- |  | ---------------------------------------- | --------- | - | ---------------------------------------- | -
|                                                                |  | (Restated)                               |           |   | (Restated)                               |  
|Investment income:                                              |  |                                          |           |   |                                          |  
|Interest from investments                                       |  | $                                        | 710       |   |                                          | $
|Total investment income                                         |  |                                          | 710       |   |                                          |  
|                                                                |  |                                          |           |   |                                          |  
|Operating expenses:                                             |  |                                          |           |   |                                          |  
|Professional fees                                               |  |                                          | 58        |   |                                          |  
|Directors fees                                                  |  |                                          | 14        |   |                                          |  
|Insurance                                                       |  |                                          | 23        |   |                                          |  
|Management fees                                                 |  |                                          | 167       |   |                                          |  
|Incentive fees                                                  |  |                                          | -         |   |                                          |  
|Administrative services – related parties                       |  |                                          | 12        |   |                                          |  
|General and administrative                                      |  |                                          | 154       |   |                                          |  
|Offering expense                                                |  |                                          | 114       |   |                                          |  
|Organizational expense                                          |  |                                          | -         |   |                                          |  
|Operating expenses before expense reimbursements                |  |                                          | 542       |   |                                          |  
|Expense reimbursement                                           |  |                                          | -         |   |                                          |  
|Total operating expenses net of expense reimbursements          |  |                                          | 542       |   |                                          |  
|                                                                |  |                                          |           |   |                                          |  
|Net investment income                                           |  |                                          | 168       |   |                                          |  
|                                                                |  |                                          |           |   |                                          |  
|Realized and unrealized gain (loss) on investments:             |  |                                          |           |   |                                          |  
|Net realized gain from investments                              |  |                                          | 85        |   |                                          |  
|Net unrealized appreciation (depreciation) on investments       |  |                                          | (266      | ) |                                          |  
|Net realized and unrealized gain (loss) on investments          |  |                                          | (181      | ) |                                          |  
|                                                                |  |                                          |           |   |                                          |  
|Net increase (decrease) in net assets resulting from operations |  | $                                        | (13       | ) |                                          | $
|                                                                |  |                                          |           |   |                                          |  
|Per share information - basic and diluted:                      |  |                                          |           |   |                                          |  
|Net investment income                                           |  | $                                        | 0.05      |   |                                          | $
|Net increase (decrease) in net assets resulting from operations |  | $                                        | (0.00     | ) |                                          | $
|Weighted average common shares outstanding                      |  |                                          | 3,442,074 |   |                                          |  



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



2







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 Three MonthsEnded March 31, 2014 |           |   | For the Three MonthsEnded March 31, 2013 |  
|------------------------------------------------------------------------------------------------ |  | ---------------------------------------- | --------- | - | ---------------------------------------- | -
|                                                                                                 |  | (Restated)                               |           |   | (Restated)                               |  
|Operations:                                                                                      |  |                                          |           |   |                                          |  
|Net investment income                                                                            |  | $                                        | 168       |   |                                          | $
|Net realized gain from investments                                                               |  |                                          | 85        |   |                                          |  
|Net unrealized appreciation (depreciation) on investments                                        |  |                                          | (266      | ) |                                          |  
|Net increase (decrease) in net assets from operations                                            |  |                                          | (13       | ) |                                          |  
|Stockholder distributions:                                                                       |  |                                          |           |   |                                          |  
|Distributions from net investment income                                                         |  |                                          | (168      | ) |                                          |  
|Distributions from net realized gain on investments                                              |  |                                          | (85       | ) |                                          |  
|Distributions from paid in capital                                                               |  |                                          | (379      | ) |                                          |  
|Net decrease in net assets from stockholder distributions                                        |  |                                          | (632      | ) |                                          |  
|Capital share transactions:                                                                      |  |                                          |           |   |                                          |  
|Issuance of common stock, net of issuance costs                                                  |  |                                          | 6,144     |   |                                          |  
|Reinvestment of stockholder distributions                                                        |  |                                          | 221       |   |                                          |  
|Total investment contributions transferred in-kind                                               |  |                                          | 757       |   |                                          |  
|Treasury capital/redemptions                                                                     |  |                                          | (11       | ) |                                          |  
|Net increase in net assets from capital share transactions                                       |  |                                          | 7,111     |   |                                          |  
|                                                                                                 |  |                                          |           |   |                                          |  
|Total increase in net assets                                                                     |  |                                          | 6,466     |   |                                          |  
|Net assets at beginning of period                                                                |  |                                          | 27,424    |   |                                          |  
|Net assets at end of period                                                                      |  | $                                        | 33,890    |   |                                          | $
|                                                                                                 |  |                                          |           |   |                                          |  
|Net asset value per common share                                                                 |  | $                                        | 8.62      |   |                                          | $
|Common shares outstanding at end of period                                                       |  |                                          | 3,931,578 |   |                                          |  
|                                                                                                 |  |                                          |           |   |                                          |  
|Accumulated distribution in excess of net investment income and net realized gain on investments |  | $                                        | (988      | ) |                                          | $



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



3







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



STATEMENTS OF CASH FLOWS

(in thousands, except share and per share
data)

(Unaudited)



|                                                                                                                         |  | For the Three MonthsEnded March 31, 2014 |         |   | For the Three MonthsEnded March 31, 2013 |  
|------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------- | ------- | - | ---------------------------------------- | -
|                                                                                                                         |  | (Restated)                               |         |   | (Restated)                               |  
|Operating activities:                                                                                                    |  |                                          |         |   |                                          |  
|Net increase (decrease) in net assets from operations                                                                    |  | $                                        | (13     | ) |                                          | $
|Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities: |  |                                          |         |   |                                          |  
|Net accretion of discount on investments                                                                                 |  |                                          | (19     | ) |                                          |  
|Repayments of investments                                                                                                |  |                                          | 4,320   |   |                                          |  
|Purchase of investments                                                                                                  |  |                                          | (9,945  | ) |                                          |  
|Repayments of investments - money market                                                                                 |  |                                          | 9,873   |   |                                          |  
|Purchase of investments - money market                                                                                   |  |                                          | (10,732 | ) |                                          |  
|Net realized gain from investments                                                                                       |  |                                          | (85     | ) |                                          |  
|Paid-in-kind interest receivable                                                                                         |  |                                          | (13     | ) |                                          |  
|Net unrealized (appreciation) depreciation on investments                                                                |  |                                          | 266     |   |                                          |  
|(Increase) decrease in operating assets:                                                                                 |  |                                          |         |   |                                          |  
|Interest receivable                                                                                                      |  |                                          | (265    | ) |                                          |  
|Prepaid expenses                                                                                                         |  |                                          | (33     | ) |                                          |  
|Due from related party                                                                                                   |  |                                          | (27     | ) |                                          |  
|Receivable for common stock purchased                                                                                    |  |                                          | (22     | ) |                                          |  
|Increase (decrease) in operating liabilities:                                                                            |  |                                          |         |   |                                          |  
|Payable for unsettled trades                                                                                             |  |                                          | 926     |   |                                          |  
|Stockholder distributions payable                                                                                        |  |                                          | 20      |   |                                          |  
|Management fees payable                                                                                                  |  |                                          | 22      |   |                                          |  
|Accounts payable and accrued liabilities                                                                                 |  |                                          | (14     | ) |                                          |  
|Net cash used in operating activities                                                                                    |  |                                          | (5,741  | ) |                                          |  
|                                                                                                                         |  |                                          |         |   |                                          |  
|Financing activities:                                                                                                    |  |                                          |         |   |                                          |  
|Proceeds from issuance of shares of common stock, net                                                                    |  |                                          | 6,144   |   |                                          |  
|Stockholder distributions                                                                                                |  |                                          | (392    | ) |                                          |  
|Treasury Stock                                                                                                           |  |                                          | (11     | ) |                                          |  
|Net cash provided by financing activities                                                                                |  |                                          | 5,741   |   |                                          |  
|                                                                                                                         |  |                                          |         |   |                                          |  
|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                                                                                                |  | $                                        | 42      |   |                                          | $
|Cash distribution payable                                                                                                |  | $                                        | 77      |   |                                          | $
|DRIP distribution paid                                                                                                   |  | $                                        | 221     |   |                                          | $
|Investment contributions transferred in-kind                                                                             |  | $                                        | 757     |   |                                          | $



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



4







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



SCHEDULE OF INVESTMENTS

(dollars in thousands)

March 31, 2014

(Unaudited)



|Portfolio
    Company (a)                        |  | Industry                                  |  | InvestmentCoupon Rate,MaturityDate       |  | Principal |        |  | AmortizedCost |   |        | Fair
    Value |  |   | %
    ofNetAssets | 
|------------------------------------------------ |  | ----------------------------------------- |  | ---------------------------------------- |  | --------- | ------ |  | ------------- | - | ------ | -------------- |  | - | ----------------- | 
|                                                 |  |                                           |  |                                          |  |           |        |  |               |   |        |                |  |   |                   | 
|Senior Secured First Lien Debt - 18.5%
    (b)   |  |                                           |  |                                          |  |           |        |  |               |   |        |                |  |   |                   | 
|Accuride Corp.                                   |  | Consumer Goods: Durable                   |  | 9.50%, 8/1/2018                          |  | $         | 825    |  |               | $ | 836    |                |  | $ | 846               | 
|Alion Science and Technology Corp.               |  | Aerospace and Defense                     |  | 10.0% cash; 2% PIK, 11/1/2014            |  |           | 1,055  |  |               |   | 1,058  |                |  |   | 1,050             | 
|American Media, Inc.                             |  | Media: Advertising, Printing & Publishing |  | 11.50%, 12/15/2017                       |  |           | 995    |  |               |   | 1,053  |                |  |   | 1,082             | 
|Cambium Learning Group, Inc.                     |  | Services: Consumer                        |  | 9.75%, 2/15/2017                         |  |           | 1,000  |  |               |   | 1,017  |                |  |   | 1,010             | 
|Endeavour International Corp.                    |  | Energy: Oil & Gas                         |  | 12.00%, 3/1/2018                         |  |           | 525    |  |               |   | 550    |                |  |   | 510               | 
|EuraMax International, Inc.                      |  | Metals & Mining                           |  | 9.50%, 4/1/2016                          |  |           | 775    |  |               |   | 779    |                |  |   | 783               | 
|Ryerson Inc./Joseph T Ryerson & Son, Inc.        |  | Metals & Mining                           |  | 9.00%, 10/15/2017                        |  |           | 490    |  |               |   | 513    |                |  |   | 529               | 
|Toys R Us Property Co II LLC                     |  | Retail                                    |  | 8.50%, 12/1/2017                         |  |           | 425    |  |               |   | 436    |                |  |   | 433               | 
|Sub Total Senior
    Secured First Lien Debt     |  |                                           |  |                                          |  |           | 6,090  |  |               |   | 6,242  |                |  |   | 6,243             | 
|                                                 |  |                                           |  |                                          |  |           |        |  |               |   |        |                |  |   |                   | 
|Senior Secured Second Lien  Debt
    - 16.2% (b) |  |                                           |  |                                          |  |           |        |  |               |   |        |                |  |   |                   | 
|Aspect Software, Inc.                            |  | Telecommunications                        |  | 10.63%, 5/15/2017                        |  | $         | 727    |  |               | $ | 732    |                |  | $ | 769               | 
|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                       |  |           | 535    |  |               |   | 510    |                |  |   | 471               | 
|Cenveo Corp.                                     |  | Services: Business                        |  | 8.88%, 2/1/2018                          |  |           | 605    |  |               |   | 608    |                |  |   | 617               | 
|Claire's Stores, Inc.                            |  | Retail                                    |  | 8.88%, 3/15/2019                         |  |           | 800    |  |               |   | 780    |                |  |   | 744               | 
|Endeavour International Corp.                    |  | Energy: Oil & Gas                         |  | 12.00%, 6/1/2018                         |  |           | 725    |  |               |   | 709    |                |  |   | 558               | 
|Logan's Roadhouse, Inc.                          |  | Beverage, Food & Tobacco                  |  | 10.75%, 10/15/2017                       |  |           | 770    |  |               |   | 731    |                |  |   | 587               | 
|Radiation Therapy Services, Inc.                 |  | Healthcare & Pharmaceuticals              |  | 8.88%, 1/15/2017                         |  |           | 960    |  |               |   | 949    |                |  |   | 998               | 
|Saratoga Resources, Inc.                         |  | Energy: Oil & Gas                         |  | 12.50%, 7/1/2016                         |  |           | 885    |  |               |   | 903    |                |  |   | 708               | 
|Sub Total Senior
    Secured Second Lien Debt    |  |                                           |  |                                          |  |           | 6,047  |  |               |   | 5,963  |                |  |   | 5,492             | 
|                                                 |  |                                           |  |                                          |  |           |        |  |               |   |        |                |  |   |                   | 
|Senior Unsecured Debt – 37.3%
    (b)            |  |                                           |  |                                          |  |           |        |  |               |   |        |                |  |   |                   | 
|Armored Autogroup, Inc.                          |  | Consumer Goods: Durable                   |  | 9.25%, 11/1/2018                         |  | $         | 925    |  |               | $ | 912    |                |  | $ | 970               | 
|Avaya, Inc.                                      |  | Telecommunications                        |  | 9.75%, 11/1/2015                         |  |           | 675    |  |               |   | 660    |                |  |   | 673               | 
|Avaya, Inc.                                      |  | Telecommunications                        |  | 10.13%, 11/1/2015                        |  |           | 485    |  |               |   | 469    |                |  |   | 484               | 
|Caesar's Entertainment Corp.                     |  | Hotel, Gaming & Leisure                   |  | 10.75%, 2/1/2016                         |  |           | 495    |  |               |   | 462    |                |  |   | 413               | 
|Cenveo Corp.                                     |  | Services: Business                        |  | 11.50%, 5/15/2017                        |  |           | 545    |  |               |   | 528    |                |  |   | 541               | 
|Ceridian Corporation                             |  | Services: Business                        |  | 11.25%, 11/15/15                         |  |           | 410    |  |               |   | 420    |                |  |   | 413               | 
|Ceridian Corporation                             |  | Services: Business                        |  | 12.25%, 11/15/15                         |  |           | 595    |  |               |   | 609    |                |  |   | 600               | 
|Clear Channel Communications                     |  | Media: Broadcasting & Subscription        |  | 10.75%, 8/1/2016                         |  |           | 400    |  |               |   | 411    |                |  |   | 409               | 
|Clear Channel Communications                     |  | Media: Broadcasting & Subscription        |  | 11.00%, 8/1/2016                         |  |           | 400    |  |               |   | 412    |                |  |   | 409               | 
|Colt Defense LLC                                 |  | Aerospace and Defense                     |  | 8.75%, 11/15/2017                        |  |           | 928    |  |               |   | 792    |                |  |   | 854               | 
|DynCorp International, Inc.                      |  | Aerospace and Defense                     |  | 10.38%, 7/1/2017                         |  |           | 810    |  |               |   | 846    |                |  |   | 846               | 
|Education Management LLC (d)                     |  | Services: Consumer                        |  | 15.00% cash; 1% PIK, 7/1/2018            |  |           | 270    |  |               |   | 235    |                |  |   | 292               | 
|Gentiva Health Services, Inc.                    |  | Healthcare & Pharmaceuticals              |  | 11.50%, 9/1/2018                         |  |           | 925    |  |               |   | 973    |                |  |   | 977               | 
|Gymboree Corp.                                   |  | Retail                                    |  | 9.13%, 12/1/2018                         |  |           | 810    |  |               |   | 757    |                |  |   | 685               | 
|Hutchinson Technology, Inc.                      |  | High Tech Industries                      |  | 8.50%, 1/15/2026, puttable on 01/15/2015 |  |           | 858    |  |               |   | 817    |                |  |   | 824               | 
|NII Capital Corp.                                |  | Telecommunications                        |  | 10.00%, 8/15/2016                        |  |           | 960    |  |               |   | 926    |                |  |   | 389               | 
|Seitel, Inc.                                     |  | Energy: Oil & Gas                         |  | 9.50%, 4/15/2019                         |  |           | 825    |  |               |   | 847    |                |  |   | 854               | 
|Suntech Power Holdings Company, Ltd. (c)         |  | Environmental Industries                  |  | 3.00%, 5/15/13                           |  |           | 100    |  |               |   | 103    |                |  |   | 10                | 
|Toys R Us, Inc.                                  |  | Retail                                    |  | 10.38%, 8/15/2017                        |  |           | 860    |  |               |   | 821    |                |  |   | 718               | 
|Travelport LLC                                   |  | Services: Consumer                        |  | 11.38% cash; 2% PIK, 3/1/2016            |  |           | 340    |  |               |   | 311    |                |  |   | 359               | 
|Visant Corp.                                     |  | Media: Advertising, Printing & Publishing |  | 10.00%, 10/1/2017                        |  |           | 950    |  |               |   | 932    |                |  |   | 946               | 
|Sub Total Senior
    Unsecured Debt              |  |                                           |  |                                          |  |           | 13,566 |  |               |   | 13,243 |                |  |   | 12,666            | 
|                                                 |  |                                           |  |                                          |  |           |        |  |               |   |        |                |  |   |                   | 
|Senior Subordinated Debt -14.6% (b)              |  |                                           |  |                                          |  |           |        |  |               |   |        |                |  |   |                   | 
|Affinion Group, Inc.                             |  | Media: Advertising, Printing & Publishing |  | 13.50%, 8/15/2018                        |  | $         | 816    |  |               | $ | 693    |                |  | $ | 828               | 
|Central Garden and Pet Co.                       |  | Retail                                    |  | 8.25%, 3/1/2018                          |  |           | 825    |  |               |   | 849    |                |  |   | 851               | 
|Claires Stores, Inc                              |  | Retail                                    |  | 10.50%, 6/1/2017                         |  |           | 215    |  |               |   | 219    |                |  |   | 218               | 
|DJO Finance, LLC.                                |  | Healthcare & Pharmaceuticals              |  | 9.75%, 10/15/2017                        |  |           | 860    |  |               |   | 898    |                |  |   | 912               | 
|QuickSilver Resources, Inc.                      |  | Energy: Oil & Gas                         |  | 7.13%, 4/1/2016                          |  |           | 690    |  |               |   | 665    |                |  |   | 643               | 
|Serena Software, Inc.                            |  | High Tech Industries                      |  | 10.38%, 3/15/2016                        |  |           | 840    |  |               |   | 854    |                |  |   | 844               | 
|Travelport LLC                                   |  | Services: Consumer                        |  | 11.88%, 9/1/2016                         |  |           | 645    |  |               |   | 610    |                |  |   | 658               | 
|Sub Total Senior
    Subordinated Debt           |  |                                           |  |                                          |  |           | 4,891  |  |               |   | 4,788  |                |  |   | 4,954             | 
|                                                 |  |                                           |  |                                          |  |           |        |  |               |   |        |                |  |   |                   | 
|Investments - Money Market -7.4% (b)             |  |                                           |  |                                          |  |           |        |  |               |   |        |                |  |   |                   | 
|Investments - U.S. Bank Money Market             |  |                                           |  | 0.03%                                    |  | $         | 2,503  |  |               | $ | 2,503  |                |  | $ | 2,503             | 
|Sub Total Investments
    - Money Market         |  |                                           |  |                                          |  |           |        |  |               |   | 2,503  |                |  |   | 2,503             | 
|                                                 |  |                                           |  |                                          |  |           |        |  |               |   |        |                |  |   |                   | 
|TOTAL
    INVESTMENTS - 94.0% (b)                |  |                                           |  |                                          |  |           |        |  |               | $ | 32,739 |                |  | $ | 31,858            | 



| | (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 7.0% 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 $33,890 as of March 31, 2014.
| | --- | --------------------------------------------------------------------

| | (c) | Non-U.S. company. The principal place of business for Suntech Power Holdings Company, Ltd. is China. Non-income producing as
of March 31, 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.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



5







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              | 
|                                                 |  |                                           |  |                                      |  |           |       |  |                |   |        |                |  |   |                    | 
|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              | 
|                                                 |  |                                           |  |                                      |  |           |       |  |                |   |        |                |  |   |                    | 
|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              | 
|                                                 |  |                                           |  |                                      |  |           |       |  |                |   |        |                |  |   |                    | 
|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              | 
|                                                 |  |                                           |  |                                      |  |           |       |  |                |   |        |                |  |   |                    | 
|Investments - Money Market - 6.0%                |  |                                           |  |                                      |  |           |       |  |                |   |        |                |  |   |                    | 
|Investments - Money Market                       |  |                                           |  |                                      |  | $         | 1,644 |  |                |   | 1,644  |                |  |   | 1,644              | 
|Sub Total Investments
    - Money Market         |  |                                           |  |                                      |  |           |       |  |                |   | 1,644  |                |  |   | 1,644              | 
|                                                 |  |                                           |  |                                      |  |           |       |  |                |   |        |                |  |   |                    | 
|TOTAL
    INVESTMENTS - 90.4% (b)                |  |                                           |  |                                      |  |           |       |  |                | $ | 25,413 |                |  | $ | 24,798             | 



| | (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.



6







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



NOTES TO FINANCIAL STATEMENTS

March 31, 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 ("BDC"), under the Investment Company Act of 1940, as amended (the “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.



As of August 20, 2013,
we are managed by VII Peaks Capital, LLC (the “Manager”), a registered investment adviser under the Investment Advisers
Act of 1940, as amended, (the “Advisers Act”). Our Manager is responsible for sourcing and conducting research on prospective
investments, analyzing opportunities, structuring our portfolio, 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 Securities Exchange
Commission (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 March 31, 2014,
we issued 3.9 million shares of common stock for gross proceeds of $39.4 million, including $0.9 million under our distribution
reinvestment plan (“DRIP”).



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 with 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.



7







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 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 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.



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.



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 March 31, 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).



8







|                                                                |  | March 31, 2014        |       
|--------------------------------------------------------------- |  | --------------------- | ------
|                                                                |  | As previouslyreported |       
|Statement of Assets and Liabilities                             |  |                       |       
|                                                                |  |                       |       
|Due from related party                                          |  | $                     | 1,337 
|Total assets                                                    |  | $                     | 35,089
|                                                                |  |                       |       
|Accumulated distribution in excess of net investment income     |  | $                     | (1,083
|Total net assets                                                |  | $                     | 33,795
|Total liabilities and net assets                                |  | $                     | 35,089
|                                                                |  |                       |       
|Net asset value per share                                       |  | $                     | 8.60  
|                                                                |  |                       |       
|Statement of Operations                                         |  |                       |       
|                                                                |  |                       |       
|Professional fees                                               |  | $                     | 85    
|Administrative services – related parties                       |  | $                     | -     
|General and administrative                                      |  | $                     | 139   
|Organizational and offering expense                             |  | $                     | 158   
|Expenses before expense waivers and reimbursements              |  | $                     | 586   
|Total expenses (income) net expense waivers and reimbursements  |  | $                     | 586   
|                                                                |  |                       |       
|Net investment income (loss)                                    |  | $                     | 124   
|                                                                |  |                       |       
|Net increase (decrease) in net assets resulting from operations |  | $                     | (57   
|                                                                |  |                       |       
|Per share information - basic and diluted:                      |  |                       |       
|Net investment income (loss)                                    |  | $                     | 0.04  
|Net increase (decrease) in net assets resulting from operations |  | $                     | (0.02 
|                                                                |  |                       |       
|Statement of Changes in Net Assets                              |  |                       |       
|                                                                |  |                       |       
|Net investment income (loss)                                    |  | $                     | 124   
|Net increase (decrease) in net assets resulting from operations |  | $                     | (57   
|                                                                |  |                       |       
|Distributions from net investment income                        |  | $                     | (124  
|Distributions from paid in capital                              |  | $                     | (423  
|                                                                |  |                       |       
|Total increase in net assets                                    |  | $                     | 6,422 
|Net assets at beginning of period                               |  | $                     | 27,373
|Net assets at end of period                                     |  | $                     | 33,795
|                                                                |  |                       |       
|Accumulated distribution in excess of net investment income     |  | $                     | (1,083
|                                                                |  |                       |       
|Statement of Cash Flows                                         |  |                       |       
|                                                                |  |                       |       
|Net increase (decrease) in net assets resulting from operations |  | $                     | (57   
|Due from related party                                          |  | $                     | 17    



Note 4. Valuation of Portfolio Investments



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



9







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.



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 March 31, 2014, according to the fair value hierarchy (dollars in thousands):



|                                     |  | Level 1 |       |  | Level 2 |   |        | Total | 
|------------------------------------ |  | ------- | ----- |  | ------- | - | ------ | ----- | 
|Investments – U.S. Bank money market |  | $       | 2,503 |  |         | $ | —      |       | 
|Senior Secured First Lien Debt       |  |         | —     |  |         |   | 6,243  |       | 
|Senior Secured Second Lien Debt      |  |         | —     |  |         |   | 5,492  |       | 
|Senior Unsecured Debt                |  |         | —     |  |         |   | 12,666 |       | 
|Senior Subordinated Debt             |  |         | —     |  |         |   | 4,954  |       | 
|Total                                |  | $       | 2,503 |  |         | $ | 29,355 |       | 



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 |   |        | 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 |       | 



No transfers between levels have occurred
during the periods presented.



10







The composition of the Fund’s investments
as of March 31, 2014, at amortized cost and fair value were as follows (dollars in thousands):



|                                     |  | Investments atAmortized Cost |        |  | Investments atFairValue |   |        | Fair ValuePercentageof Total Portfolio | 
|------------------------------------ |  | ---------------------------- | ------ |  | ----------------------- | - | ------ | -------------------------------------- | 
|Investments – U.S. Bank money market |  | $                            | 2,503  |  |                         | $ | 2,503  |                                        | 
|Senior Secured First Lien Debt       |  |                              | 6,242  |  |                         |   | 6,243  |                                        | 
|Senior Secured Second Lien Debt      |  |                              | 5,963  |  |                         |   | 5,492  |                                        | 
|Senior Unsecured Debt                |  |                              | 13,243 |  |                         |   | 12,666 |                                        | 
|Senior Subordinated Debt             |  |                              | 4,788  |  |                         |   | 4,954  |                                        | 
|Total                                |  | $                            | 32,739 |  |                         | $ | 31,858 |                                        | 



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 atFairValue |   |        | 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



As of August 20, 2013,
the Fund is 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 VII Peaks Capital, LLC 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 months ended March 31, 2014 and 2013, the Fund
incurred $0.2 million and $0.08 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 months ended March 31, 2014, the Fund did not incur any incentive fees
related to net investment income or capital gains. For the three months ended March 31, 2013, the Fund incurred no incentive fees
related to net investment income and $0.02 million in incentive fees on capital gains.



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.



11







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 March 31, 2014 and December 31,
2013, the unreimbursed amount of organization and 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 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 March 31, 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 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.



Administration Agreement



The Fund has
also entered into an administration agreement with the Manager under which the Manager provides the Fund with office facilities,
equipment and clerical, bookkeeping and record keeping services at such facilities and provides or oversees the performance of
the Fund’s required administrative services, which include, among other things, being responsible for the financial records
which the Fund is required to maintain and preparing reports to its stockholders. Under the administration agreement, we are obligated
to reimburse our Manager for our allocable portion of overhead cost incurred by the Manager. During the three months ended March
31, 2014 and 2013, the Fund reimbursed the Manager for $0.01 million and $0.05 million in administration expenses under the administration
agreement, respectively. These expenses are included in General and Administrative on the Statement of Operations.



Note 6.  Common Stock



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 March 31, 2014, the Fund has sold 3.9 million shares of common stock for gross
proceeds of $39.4 million, including the purchases made by the Manager.



During the three months ended March 31,
2014, the Fund sold 757,298 shares of common stock in its offering for net proceeds of $6.9 million, including shares issued under
the distribution reinvestment plan (“DRIP”).



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.



12







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 months ended March 31, 2014 and 2013 (dollars in thousands except share and per share amounts):



|                                                                          |  | For thethreemonthsendedMarch 31,2014 |           |   | For thethreemonthsendedMarch 31,2013 |  
|------------------------------------------------------------------------- |  | ------------------------------------ | --------- | - | ------------------------------------ | -
|                                                                          |  | (Restated)                           |           |   | (Restated)                           |  
|Basic and diluted                                                         |  |                                      |           |   |                                      |  
|Net increase (decrease) in net assets resulting from operations           |  | $                                    | (13       | ) |                                      | $
|Weighted average common shares outstanding                                |  |                                      | 3,442,074 |   |                                      |  
|Net increase (decrease) in net assets resulting from operations per share |  | $                                    | (0.00     | ) |                                      | $



The Fund had
no potentially dilutive securities as of March 31, 2014 or March 31, 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.



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



|                               |  |                     |  |                   |     |  |                                   |  |     |                |  |   | Aggregate                     | 
|------------------------------ |  | ------------------- |  | ----------------- | --- |  | --------------------------------- |  | --- | -------------- |  | - | ----------------------------- | 
|                               |  |                     |  |                   |     |  | Purchases of Shares               |  |     | Repurchase     |  |   | Consideration for             | 
|For
    the Three Months Ended |  | Repurchase
    Date |  | SharesRepurchased |     |  | Tendered
    that wereRepurchased |  |     | PricePer Share |  |   | Repurchased
    Shares('000s) | 
|December 31, 2013              |  | December 12, 2013   |  |                   | 548 |  |                                   |  | 100 | %              |  | $ | 9.135                         | 
|March 31, 2014                 |  | March 14, 2014      |  |                   | 550 |  |                                   |  | 100 | %              |  | $ | 9.135                         | 



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 and
is not being made through this prospectus.



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 March 31, 2014, the Fund has accrued
$0.1 million in stockholder distributions that were unpaid. All amounts declared in March 2014 and paid in April 2014 have been
accrued in the March 31, 2014 financial statements. As of December 31, 2013, the Fund has accrued $0.1 million in stockholder distributions
that were unpaid. All amounts declared in December 2013 and paid in January 2014 have been accrued in the December 31, 2013 financial
statements.



13







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   |      | 
|TOTAL                                 |  |               |         |  |            |  | 1,116 |             |  |  | 480       |  |  |       | 983 |  |         |  | 2,579 |      | 



* 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 three months ended March 31, 2014:



|Source of Distributions:                 |  | Three months ended March 31, 2014 |     |  | Year Ended December 31, 2013 |  |       | Year Ended December 31, 2012 | 
|---------------------------------------- |  | --------------------------------- | --- |  | ---------------------------- |  | ----- | ---------------------------- | 
|                                         |  | (Restated)                        |     |  | (Restated)                   |  |       | (Restated)                   | 
|Distributions from Net investment income |  | $                                 | 168 |  |                              |  | 26.6  | %                            | 
|Distributions from Realized Gains        |  |                                   | 85  |  |                              |  | 13.4  | %                            | 
|Distributions from Paid In Capital       |  |                                   | 379 |  |                              |  | 60.0  | %                            | 
|TOTAL                                    |  | $                                 | 632 |  |                              |  | 100.0 | %                            | 



There were no distributions
paid with borrowings, offering proceeds, 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) |  | $                | 114 |  |                                             | $ | 282   |                                                                |  |  | 45                                                        | % |  |                                                            | 13
|2013 (Restated) |  | $                | 322 |  |                                             | $ | 1,120 |                                                                |  |  | 66                                                        | % |  |                                                            | 23
|2012 (Restated) |  | $                | 142 |  |                                             | $ | 292   |                                                                |  |  | 100                                                       | % |  |                                                            | 0 



14







Note 10.  Financial Highlights



The following is a schedule of financial
highlights for the three months ended March 31, 2014 and 2013:



|                                                                     |  | For the threemonths endedMarch 31, 2014 |           |   | For the threemonths endedMarch 31, 2013 |  
|-------------------------------------------------------------------- |  | --------------------------------------- | --------- | - | --------------------------------------- | -
|                                                                     |  | (Restated)                              |           |   | (Restated)                              |  
|Per share data:                                                      |  |                                         |           |   |                                         |  
|Net asset value, beginning of period                                 |  | $                                       | 8.70      |   |                                         | $
|                                                                     |  |                                         |           |   |                                         |  
|Results of operations (1)                                            |  |                                         |           |   |                                         |  
|Net investment income                                                |  |                                         | 0.05      |   |                                         |  
|Net realized gain on investments                                     |  |                                         | 0.03      |   |                                         |  
|Net unrealized gain (loss) on investments                            |  |                                         | (0.08     | ) |                                         |  
|Net increase (decrease) in net assets resulting from operations      |  |                                         | (0.00     | ) |                                         |  
|                                                                     |  |                                         |           |   |                                         |  
|Stockholder distributions (2)                                        |  |                                         |           |   |                                         |  
|Distributions from net investment income                             |  |                                         | (0.05     | ) |                                         |  
|Distributions from realized gains                                    |  |                                         | (0.03     | ) |                                         |  
|Distributions from capital                                           |  |                                         | (0.10     | ) |                                         |  
|Net decrease in net assets resulting from stockholder distributions  |  |                                         | (0.18     | ) |                                         |  
|                                                                     |  |                                         |           |   |                                         |  
|Capital share transactions                                           |  |                                         |           |   |                                         |  
|Impact from issuance of common stock (3)                             |  |                                         | 0.10      |   |                                         |  
|Net increase in net assets resulting from capital share transactions |  |                                         | 0.10      |   |                                         |  
|Net asset value, end of period                                       |  | $                                       | 8.62      |   |                                         | $
|Shares outstanding at end of period                                  |  |                                         | 3,931,578 |   |                                         |  
|Total return (5)                                                     |  |                                         | 1.34      | % |                                         |  
|Ratio/Supplemental data:                                             |  |                                         |           |   |                                         |  
|Net assets, end of period (in thousands)                             |  | $                                       | 33,890    |   |                                         | $
|Average net assets (in thousands)                                    |  | $                                       | 26,051    |   |                                         | $
|Ratio of net investment income to average net assets (4)(7)          |  |                                         | 2.62      | % |                                         |  
|Ratio of operating expenses to average net assets (4)(7)             |  |                                         | 8.44      | % |                                         |  
|Ratio of expenses reimbursed to average net assets (7)               |  |                                         | -         | % |                                         |  
|Portfolio turnover ratio (6)                                         |  |                                         | 19.82     | % |                                         |  








| | (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 March 31, 2014. Net investment income (loss) per share excluding the expense reimbursements would
have been ($0.08) for the three months ended March 31, 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 three months ended March 31, 2014 there was no expense waiver and reimbursement.
For the three months ended March 31, 2013, excluding the expense reimbursement, the ratio of net investment income and operating
expenses to average net assets is (3.32)% and 11.12%, 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 three months ended March 31, 2014 there was no expense reimbursement.
The total return based on net asset value for the three months ended March 31, 2013, includes the effect of the expense reimbursement
which added 1.66% to the return.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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
April 1, 2014 to July 16, 2015, the Fund issued 2.3 million shares of common stock for gross proceeds of $22.3 million. The proceeds
were substantially invested in new debt securities.



On May 9, 2014, the Fund gave its voluntary
consent to tender the full position of Caesar’s Entertainment Corp. 10%, 12/15/2015 senior secured second lien notes. The
Fund chose cash option for tender. The terms were $1,022.50 per $1,000 par, which is a combination of $992.50 tender offer and
$30 consent payment. The tender offer was completed and Fund received proceeds including all accrued interest on July 28, 2014.



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



On July 10, 2014 the Fund gave its voluntary
consent to tender the full position of Armored AutoGroup, 9.25%, 11/01/2018 senior unsecured notes. The Fund chose the cash option
for tender. The terms were cash payment of $5.00 per $1,000 par.



15







On July 23, 2014 the Fund gave its voluntary
consent to tender the full position of Clear Channel Communications, 11.0%, 8/01/2016 senior unsecured notes. The Fund chose the
cash option for tender. The terms were $1,006.42 per $1,000 par, which is a combination of $976.42 tender offer and $30 consent
payment.



On July 29, 2014, Cenveo, Inc. redeemed
all of its 8.875% Notes due 2018 for $1,044.40 per $1,000 par including all accrued interest from the proceeds of its newly issued
senior secured notes due 2019 and 2022.



On
August 8, 2014, the Pricing Committee of our Board of Directors decreased the share price for new investments from $10.15 to $10.00
per share, and on November 18, 2014 the Pricing Committee of our Board of Directors decreased the share price for new investments
from $10.00 to $9.75 per share.



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.



16







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 Advisor II, 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. The debt is generally high-yield and non-investment grade. 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, or (“VII
Peaks”), 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 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.



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.



17







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 Advisers Act. 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.



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



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



18







| | · | 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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 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 for the three months ended March 31, 2014, as compared to $0.2 million for the three months ended
March 31, 2013. The increase is due to a larger note portfolio earning interest in 2014 as compared to 2013. At March 31, 2014,
the weighted average coupon yield was 10.3%, as compared to 10.0% as of March 31, 2013.



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.



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.



19







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.



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 three months
ended March 31, 2014, we made $9.9 million of investments in new portfolio companies and had $4.3 million in aggregate amount of
exits and repayments, resulting in net investments of $5.6 million for the period. During the three months ended March 31, 2013,
we made $7.2 million of investments in new portfolio companies and had $2.0 million in aggregate amount of exits and repayments,
resulting in net investments of $5.2 million for the period. As of March 31, 2014, we had one portfolio investment in default with
a fair value of $0.01 million which represented 0.1% of our portfolio.



The following table presents our portfolio
composition based on fair value as of March 31, 2014:



|                                     |  | As of March 31, 2014         |      
|------------------------------------ |  | ---------------------------- | -----
|                                     |  | Percentage ofTotal Portfolio |      
|Investments – U.S. Bank money market |  |                              | 7.9  
|Senior Secured First Lien Debt       |  |                              | 19.6 
|Senior Secured Second Lien Debt      |  |                              | 17.2 
|Senior Unsecured Debt                |  |                              | 39.8 
|Senior Subordinated Debt             |  |                              | 15.5 
|Total                                |  |                              | 100.0



As of March 31, 2014, our investment
portfolio had a yield to maturity of 10.77 %, and an average duration of 2.59 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



20







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 March 31, 2014 (dollars in thousands):



|                                          |  | As of March 31, 2014     |       
|----------------------------------------- |  | ------------------------ | ------
|                                          |  | Investments at FairValue |       
|Retail                                    |  | $                        | 3,690 
|Energy: Oil & Gas                         |  |                          | 3,274 
|Healthcare & Pharmaceuticals              |  |                          | 2,887 
|Media: Advertising, Printing & Publishing |  |                          | 2,857 
|Aerospace and Defense                     |  |                          | 2,750 
|Investments - Money Market                |  |                          | 2,503 
|Services: Consumer                        |  |                          | 2,318 
|Telecommunications                        |  |                          | 2,315 
|Services: Business                        |  |                          | 2,170 
|Consumer Goods: Durable                   |  |                          | 1,816 
|High Tech Industries                      |  |                          | 1,668 
|Metals & Mining                           |  |                          | 1,311 
|Hotel, Gaming & Leisure                   |  |                          | 884   
|Media: Broadcasting & Subscription        |  |                          | 818   
|Beverage, Food & Tobacco                  |  |                          | 587   
|Environmental Industries                  |  |                          | 10    
|Total                                     |  | $                        | 31,858



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  |       
|----------------------------------------- |  | ------------------------ | ------
|                                          |  | Investments at FairValue |       
|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
$31.9 million as of March 31, 2014 as compared to $24.8 million as of December 31, 2013. The portfolio increase in the three months
ending March 31, 2014 is mainly due to invested proceeds from continuous investor closings. The additional proceeds from investor
closings in the three months ending March 31, 2014 also led to further portfolio diversification by industry, as compared to diversification
as of December 31, 2013.





Results of Operations



We were formed on August 3, 2011, and commenced
operations on July 10, 2012, when we raised in excess of $1,000,000 from persons who were not affiliated with us or our Manager.
Prior to satisfying the minimum offering requirement, we had no operations except for matters relating to our organization and
registration as a non-diversified, closed-end management investment company. As a result, our operating results for 2013 are not
necessarily applicable to our results in 2012. 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. Revenue is earned as interest on the
high-yield investments. Expenses include professional services, management fees, organizational and offering costs and other general
and administrative. Realized gain/loss 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. Operating results for the three months ended March
31, 2014 and 2013 are as follows (dollars in thousands):



21







|                                                                |  | For the threemonths endedMarch 31, 2014 |      |   | For the threemonths endedMarch 31, 2013 |  
|--------------------------------------------------------------- |  | --------------------------------------- | ---- | - | --------------------------------------- | -
|                                                                |  | (Restated)                              |      |   | (Restated)                              |  
|Total investment income                                         |  | $                                       | 710  |   |                                         | $
|Total expenses, net                                             |  |                                         | 542  |   |                                         |  
|Net investment income                                           |  |                                         | 168  |   |                                         |  
|Net realized gains                                              |  |                                         | 85   |   |                                         |  
|Net unrealized appreciation (depreciation)                      |  |                                         | (266 | ) |                                         |  
|Net increase (decrease) in net assets resulting from operations |  | $                                       | (13  | ) |                                         | $



Revenues



We generated investment income of $0.7 million
for the three months ended March 31, 2014, as compared to $0.2 million for the three months ended March 31, 2013, in the form
of interest and fees earned on senior secured loans, senior secured bonds, subordinated debt and collateralized securities in our
portfolio. The level of income we receive is directly related to the balance of 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 March 31, 2014 note portfolio was significantly higher
than the March 31, 2013 balance.



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 months ended March 31, 2014 and 2013 was as follows (dollars in thousands):



|                                                                   |  | For the threemonths endedMarch 31, 2014 |     |  | For the threemonths endedMarch 31, 2013 |  
|------------------------------------------------------------------ |  | --------------------------------------- | --- |  | --------------------------------------- | -
|                                                                   |  | (Restated)                              |     |  | (Restated)                              |  
|Professional fees                                                  |  | $                                       | 58  |  |                                         | $
|Director fees                                                      |  |                                         | 14  |  |                                         |  
|Insurance                                                          |  |                                         | 23  |  |                                         |  
|Management fees                                                    |  |                                         | 167 |  |                                         |  
|Incentive fees                                                     |  |                                         | —   |  |                                         |  
|Administrative services – related parties                          |  |                                         | 12  |  |                                         |  
|General and administrative expenses                                |  |                                         | 154 |  |                                         |  
|Organizational and offering expense                                |  |                                         | 114 |  |                                         |  
|Operating expenses before expense reimbursements                   |  |                                         | 542 |  |                                         |  
|Expense reimbursement                                              |  |                                         | —   |  |                                         |  
|Total operating expenses net of expense waivers and reimbursements |  | $                                       | 542 |  |                                         | $



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 $0.2 million in the three months ended March 31, 2013.



22







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 has 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.



Net Investment Income



Our net investment
income totaled $0.2 million and $0.1 million for the three months ended March 31, 2014 and 2013, respectively. Of our net investment
income, $0.0 million and $0.2 million for the three months ended March 31, 2014 and 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 months ended March 31, 2014 and 2013, total investment income was $0.7 million and $0.2 million, respectively. The
increase in net investment income in the three months ending March 31, 2014 as compared to the three months ending March 31, 2013
is due to a higher earning asset average balance in the investment portfolio. For the three months ended March 31, 2014, and 2013,
total expenses before expense reimbursements were $0.5 million and $0.3 million, respectively.



Net Realized Gains or Losses from Investments



For the three months
ended March 31, 2014 and 2013, we had $4.3 million and $2.0 million of principal repayments, resulting in $0.09 million and $0.05
million of realized gains, respectively.



Net Change in Unrealized Appreciation or Depreciation
on Investments



For the three months
ended March 31, 2014 and 2013, we had $0.3 million of unrealized depreciation and $0.2 million of unrealized appreciation, respectively.



Changes in Net Assets from Operations



For the three months
ended March 31, 2014 and 2013, we recorded a net increase (decrease) in net assets resulting from operations of ($0.01) million
and $0.4 million, respectively. Based on 3,442,074 and 1,292,508 weighted average common shares outstanding for the three months
ended March 31, 2014 and 2013, respectively, our per share net increase (decrease) in net assets resulting from operations was
($0.00) and $0.29, respectively.



Liquidity and Capital Resources



We generate cash primarily
from the net proceeds of our ongoing continuous public offering and from cash flows from fees, 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 March 31, 2014, we issued 3.9 million shares of common stock for gross proceeds
of $39.4 million, including $1.0 million of DRIP. We currently sell our shares on a continuous basis at a current offering price
of $10.15; however, 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 March 31,
2014 and December 31, 2013, we had $2.5 million and $1.6 million, respectively, invested in money market investments pending investment
in debt instruments.



For the three months
ended March 31, 2014, we experienced a net increase in money market investments of $0.9 million. For the three months ended March
31, 2014, approximately $5.7 million was generated from our financing activities, which primarily consisted of $6.1 million in
net offering proceeds received, offset by $0.4 million in distributions. We used approximately $5.7 million of cash in our operating
activities primarily as a result of increases in receivables for interest and due from related party and a decrease in receivable
for sales of common stock. Also, we received proceeds from the sale of, repayment of and principal payments on portfolio debt investments
of $4.3 million, offset by the purchase of new portfolio debt investments of $9.9 million.



We do not expect to
borrow funds during the following twelve months 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.



23







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        | %



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



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 |  |                   | 



24







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 NetInvestmentIncome excludingoffering costs |  |  | % Distributionsfrom RealizedGains excludingoffering costs |   |  | % Distributionsfrom Paid InCapital excludingoffering costs |   
|--------------- |  | ---------------- | --- |  | ------------------------------------------- | - | ----- | -------------------------------------------------------------- |  |  | --------------------------------------------------------- | - |  | ---------------------------------------------------------- | --
|2014 (Restated) |  | $                | 114 |  |                                             | $ | 282   |                                                                |  |  | 45                                                        | % |  |                                                            | 13
|2013 (Restated) |  | $                | 322 |  |                                             | $ | 1,120 |                                                                |  |  | 66                                                        | % |  |                                                            | 23
|2012 (Restated) |  | $                | 142 |  |                                             | $ | 292   |                                                                |  |  | 100                                                       | % |  |                                                            | 0 



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 and the Dealer Manager, whereby we pay certain fees and reimbursements to these entities. These include
payments to the Dealer Manager for selling commissions and the Dealer Manager fee and 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 5 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.



25







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, including changes in interest rates. 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 March 31, 2014 levels would result in an increase or decrease in net asset value of
$0.3 million or 0.91%.



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 procedures 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 March 31,
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.



26







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.



27







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                                       
|                    |                                          
|                    |                                          
|                    |                                          
|                    |                                          



28