UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549










Form 10-K/A

(Amendment No.1)












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



For the fiscal year ended
December 31, 2013



| ̈ | 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 incorporation or organization) |  | (I.R.S. Employer 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)










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

Common Stock, par value

None

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

Common Stock, par value

$0.001 per share



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.  Yes ̈Nox



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934. Yes ̈Nox



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



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



There is no established market for the Registrant’s
shares of common stock. The Registrant is currently conducting an ongoing public offering of its shares of common stock pursuant
to a Registration Statement on Form N-2 (File No. 333-166636), which shares are being sold at $10.15 per share as of December 31,
2013, with discounts available for certain categories of purchasers, or at a price necessary to ensure that shares are not sold
at a price below net asset value per share.



The number of shares
of the Registrant’s common stock, par value $0.001 per share, outstanding as of March 10, 2014 was 3,619,692.



Documents Incorporated by Reference



Portions of the registrant’s definitive Proxy Statement
relating to the registrant’s 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission
within 120 days following the end of the Company’s fiscal year, are incorporated by reference in Part III of this Annual
Report on Form 10-K as indicated herein.











Explanatory Note



This Amendment No. 1 on Form 10-K/A to the
Annual Report on Form 10-K of VII Peaks Co-Optivist Income BDC II, Inc. (the “Fund”) for the year ended December 31,
2013 (the “Annual Period”), as originally filed with the Securities and Exchange Commission (the “SEC”)
on March 11, 2014 (the “Original Report”), is being filed to restate the Fund’s previously issued financial
statements for the Annual Period and to revise related disclosures, including “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” for the Annual 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-K/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-K/A speaks as of the date of the filing
of the Original Report, March 11, 2014, and the disclosures contained in this Form 10-K/A have not been updated to reflect events
occurring subsequent to that date, other than those associated with the restatement.











Forward Looking Statements



The following information contains statements
that constitute forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements generally are characterized
by the use of terms such as “may,” “should,” “plan,” “anticipate,” “estimate,”
“intend,” “predict,” “believe,” and “expect” or the negative of these terms or
other comparable terminology. Although we believe that the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements.



Forward-looking statements contained in
this Annual Report are subject to a number of risks and uncertainties, some of which are beyond our control, including statements
as to:



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

| | • | our ability to successfully employ our Co-OptivistTMapproach 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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

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



For a discussion of factors that could cause
our actual results to differ from forward-looking statements contained in this Annual Report, please see the discussion under Part
I, Item 1A “Risk Factors”. You should not place undue reliance on these forward-looking statements. The forward-looking
statements made in this Annual Report relate only to events as of the date on which the statements are made. We undertake no obligation
to update any forward-looking statement to reflect events or circumstances occurring after the date of this Annual Report.











VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.

FORM 10-K/A FOR THE YEAR ENDED DECEMBER
31, 2013



TABLE OF CONTENTS



|                                                                                                                     | Page
|-------------------------------------------------------------------------------------------------------------------- | ----
|PART I                                                                                                              
|                                                                                                                     |     
|Item 1. Business                                                                                                     | 3   
|Item 1A. Risk Factors                                                                                                | 14  
|Item 1B. Unresolved Staff Comments                                                                                   | 27  
|Item 2. Properties                                                                                                   | 27  
|Item 3. Legal Proceedings                                                                                            | 27  
|Item 4. Mine Safety Disclosures                                                                                      | 27  
|PART II                                                                                                             
|                                                                                                                     |     
|Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 27  
|Item 6. Selected Financial Data                                                                                      | 30  
|Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 31  
|Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                                  | 39  
|Item 8. Financial Statements and Supplementary Data                                                                  | 40  
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         | 41  
|Item 9A. Controls and Procedures                                                                                     | 41  
|Item 9B. Other Information                                                                                           | 41  
|PART III                                                                                                            
|                                                                                                                     |     
|Item 10. Directors, Executive Officers and Corporate Governance                                                      | 42  
|Item 11. Executive Compensation                                                                                      | 42  
|Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters              | 42  
|Item 13. Certain Relationships and Related Transactions, and Director Independence                                   | 42  
|Item 14. Principal Accountant Fees and Services                                                                      | 42  
|PART IV                                                                                                             
|                                                                                                                     |     
|Item 15. Exhibits and Financial Statement Schedules                                                                  | 43  
|Signatures                                                                                                           | 44  



2







Part I



Except as otherwise specified in this annual report on Form
10-K/A (“Annual Report”), the terms:



| | • | “we”, “us”, “our” and the “Fund” refer to VII Peaks Co-Optivist Income BDC II, Inc., a Maryland Corporation.
| | - | ------------------------------------------------------------------------------------------------------------



ITEM 1. BUSINESS



General



We are a specialty
finance company incorporated in Maryland on August 3, 2011. We are 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. Prior to August 20, 2013 the Fund was managed by VII Peaks-KBR BDC Advisor II, LLC who was wholly-owned by VII Peaks-KBR,
LLC which was a joint venture between VII Peaks Capital, LLC and KBR Capital Advisors, LLC (“KBR”).



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 December 31,
2013, we issued 3.2 million shares of common stock for gross proceeds of $31.6 million, including $0.7 million under our distribution
reinvestment plan (“DRIP”).



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.



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.



3







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. Please see Part II, Item 5. “Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities” for a detailed description of Distributions.



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 2015. 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.



As a BDC, we are required
to comply with certain regulatory requirements. For instance, we have to invest at least 70% of our total assets in “qualifying
assets,” including securities of U.S. operating companies whose securities are not listed on a national securities exchange
(i.e., New York Stock Exchange, American Stock Exchange and The NASDAQ Global Market), U.S. operating companies with listed securities
that have equity market capitalizations of less than $250 million, cash, cash equivalents, U.S. government securities and high-quality
debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage,
which, as defined in the 1940 Act, measures the ratio of total assets less total liabilities (excluding borrowings) to total borrowings,
equals at least 200% after such borrowing, with certain limited exceptions.



Market Opportunity



In the upcoming years,
we believe many companies will face maturities and redemptions on significant amounts of outstanding debt and will have to find
ways to refinance those obligations.



While companies have
recently taken advantage of the low-interest rate environment to amend and extend their debt maturities, we believe this is only
a temporary push-out of the debt maturity wall without a meaningful reduction in overall outstanding debt. For the foreseeable
future, we expect continued low demand for collateralized debt and soft economic growth to keep credit markets tight. The amount
of speculative-grade debt (“BB+” and lower) coming due will continue to be a large share of overall maturing debt.
Corporate borrowers whose debt carries lower ratings have had difficulty obtaining refinancing and face what we call a “refinancing
wall”. As a result, many companies with speculative-grade debt have chosen to amend-and-extend their maturities rather than
fully refinance their debt.



Our strategy is to
invest in debt securities that are issued by companies with solid fundamentals and business prospects but who are facing a liquidity
shortfall as they approach the “refinancing wall”. We believe that the expertise and experience of the officers of
our Manager provide us with the ability to identify debt securities that we believe are currently mispriced in the secondary loan
market and thus provide opportunity for returns as their values recover and appreciate.



Potential Competitive Strengths



We believe that we
have the following potential competitive strengths as compared to investment funds that also invest in discounted corporate debt
and equity-linked debt securities:



| | • | We Are Not a Traditional Distressed Fund.  Traditional distressed debt investors typically seek to own the debt and engage in a bankruptcy process with the issuing company and eventually become equity holders. Through equity ownership, traditional distressed debt investors then intend to restructure operations of the company. In contrast, we do not invest in debt securities with the intent of undergoing a bankruptcy process. We look to partner with management to pro-actively avoid a default and bankruptcy situation. We are focused on restructuring company balance sheets, not company operations.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



4







| | • | Investment Hold Period.   We will not actively trade in and out of positions. Rather, we hold our investments for an average of 12 – 18 months. During this hold period we anticipate working co-operatively with target company management and other debt holders on a debt restructuring or exchange.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Comprehensive Private Equity Due Diligence Approach.   We employ a comprehensive private equity approach to our investment due diligence process. This approach involves performing comprehensive business and industry due diligence and in-depth, bottoms-up valuation analyses for each investment, comparable to what a private equity firm with a long-term ownership position would conduct prior to investing in a target company. We believe this disciplined approach serves as an effective risk management tool for our investment process.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Relevant Capital Markets and Investment Experience.   Our investment team consists of individuals who collectively have expertise and experience in principal investing, debt securities and general capital markets. The members of our investment team combined have been involved in the issuance of over $20 billion of debt securities, advised on a number of merger and acquisition transactions and invested in a number of private equity and leveraged buyout transactions.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Investment Criteria and Strategy



We invest in discounted
corporate debt and equity-linked debt securities of companies that have a perceived risk of near term liquidity issues but have
solid business fundamentals and prospects, including historical revenue growth, positive cash flow, significant and sustainable
market presence, and sufficient asset coverage. We take a principal position in discounted debt securities with the primary goal
of restructuring the terms of the debt to allow the target company to increase its liquidity and strengthen its balance sheet.
Our typical target company has a debt redemption event (typically either a put or maturity event) on average within 24 months of
our investment and has experienced a significant decline in its equity value reflective of a highly leverage capital structure
or general market conditions. We believe that proactively guiding such companies to restructure their debt will allow them to increase
liquidity and free up resources to grow their businesses rather than focusing on managing their debt obligations. We also believe
that our involvement can allow the target company more flexibility to explore strategic alternatives, since the terms of the existing
debt structure often limits strategic options for the target company.



The following is our
primary investment criteria for our target company:



| | • | minimum enterprise value of $200 million;
| | - | -----------------------------------------



| | • | solid business fundamentals, such as historic revenue growth, profitability and cash flow generation, and favorable prospects for continued improvement in financial performance;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | sufficient asset coverage of at least one and a half times the amount of our potential investment for outstanding liabilities;
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | • | debt or equity-linked debt trading at a discount to par or at a premium yield in secondary loan markets due to a perceived risk of near term liquidity issues;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | balance sheet with debt to total capitalization of at least 50% or high debt to equity ratios; and
| | - | --------------------------------------------------------------------------------------------------



| | • | near term redemption (maturity or put) event on its debt creating an upcoming liquidity shortfall.
| | - | --------------------------------------------------------------------------------------------------



The securities that
we target include high-yield debt, bank debt, convertible debt, and collateralized loan obligations (“CLO”), which
are high-yield loans securitized into pools containing varying degrees of credit rating. 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. In addition to the investments noted above, we may invest up to 30% of
our portfolio in opportunistic investments, including, but not limited to, high-yield bonds, private equity investments, distressed
debt investments and securities of public companies that are not thinly traded. We expect that these public companies generally
will have debt securities that are non-investment grade. We also may invest in debt securities of middle-market companies located
outside of the United States. All investments by us will be subject to oversight by our board of directors, a majority of whom
will be independent directors with no material interests in such transactions.



In each of our debt
investments, we seek to become an influential investor, typically either through the size of our position or cooperation with other
debt holders to pursue the shared goal of a beneficial debt restructuring. We actively work with other debt holders and the target
company management to potentially restructure and exchange the existing debt for new securities with amended terms. We believe
that a debt restructuring can be a positive outcome for not just the issuer but also its other stakeholders.





| | • | For such issuers and their equity holders, a debt restructuring is typically viewed favorably by the equity markets and may result in price appreciation in the target company equity securities.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



5







| | • | For investors in the existing debt, a restructuring is often effected through an exchange of securities at a premium to current trading levels to compel security holders to participate. The commencement of a restructuring and its perceived improvement to the company’s balance sheet represents an opportunity for investors to participate in capital appreciation that may result from a recovery in the value of the debt securities.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | For the issuer, a debt restructuring can potentially improve liquidity and strengthen its balance sheet by allowing the issuer to retire debt at a discount or obtain more favorable repayment terms.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We employ our Co-Optivist TM
approach in executing our investment strategy, which entails taking an influential position and proactively engaging the target
company management on average 24 months prior to a redemption event (typically a put or maturity event). This approach differs
from traditional activist debt holders who typically wait until a company is near or at bankruptcy before beginning formal discussions
regarding debt restructuring options. In addition, our strategy does not involve taking an operational role in the target company
or changing management or members of the target companies’ board of directors or actively negotiating the terms of the restructuring.
Rather, we look to establish a positive working relationship in assisting our target company to achieve shared goals.



We apply strict investment
criteria to, and perform comprehensive due diligence on, each investment opportunity prior to making an investment decision. We
define a base case as a situation where no debt restructuring occurs and the target company management chooses to meet the redemption
event. With a successful restructuring, we see a potential for further upside in returns that could potentially exceed our base
case. In connection with our investments, we actively pursue various hedging strategies to manage the volatility and risk profile
of our overall investment portfolio, which may include purchasing derivatives or other securities. We do not anticipate that such
equity exposure including overall hedging costs will exceed 5% of the overall portfolio.



Investment Selection Process



Our investment committee
is responsible for reviewing, discussing and approving each investment idea we seek to pursue. Our investment committee meets routinely,
to discuss new and existing ideas and developments on current investments. Our investment committee currently is led by Mr. Chandhoke,
who also serves as our Chief Executive Officer, and Mr. Shea, a Managing Partner of VII Peaks Capital, LLC.



At the start of the
investment selection process, the investment team distributes to the investment committee a preliminary memorandum for each investment
opportunity detailing how the investment fits our investment criteria and the associated opportunities and risks of such investment.
The investment committee then decides whether to expend resources and proceed with further due diligence on a particular investment
opportunity. For the opportunities that are approved for further diligence, the investment team commences detailed due diligence.
Upon completion of due diligence, the investment team circulates a final due diligence report to the investment committee, which
will include a full investment memorandum detailing the investment opportunities and risks along with all supplemental due diligence
materials and exhibits, including industry and market research, due diligence summaries and financial analyses. The investment
committee reviews and discusses all materials and conducts a final vote on whether to execute on an investment. We will only make
investments that are approved by a majority of the investment committee members, and no investment can be approved without the
favorable vote on the investment by our Chief Executive Officer.



Below is a summary
of our investment and approval process:







In addition to the
investments noted above, we may invest up to 30% of our portfolio in opportunistic investments, including, but not limited to,
securities of public companies that are not thinly traded and debt securities of companies located outside of the United States.



6







Investment Exit Strategy



We employ a strict
sell discipline to our investments. As mentioned in our investment selection process, we look for investment opportunities that
provide us with the potential to generate income to support sustainable distributions, even if no restructuring of the debt occurs.
If a debt restructuring has not occurred upon an investment reaching this return threshold, we will continue our efforts to drive
towards a restructuring. If a successful restructuring of the target company debt occurs, we sell a portion of our holdings upon
the next pre-determined sell threshold (which we estimate will be approximately twice the average current yield of high yield bonds),
usually within one to two quarters after the restructuring event. At that time, depending on the market response to the proposed
restructuring, we may choose to exit the entire investment or maintain a small portion to further augment returns.



We anticipate that
it will take approximately two weeks to accumulate our position in a target company. Following that, we expect that it will take
a minimum of an additional two to four weeks to approach management of the target company with a debt restructuring proposal. Assuming
the target company wishes to pursue our debt restructuring proposal, we expect that the restructuring itself will take approximately
three to six months to implement. At any time during this process, if we feel the target company is unwilling to pursue our debt
restructuring proposal, we will seek to dispose of our position in the target company in an orderly manner. We avoid holding the
discounted debt if a redemption event is approaching within six months and there is no existing evidence that this debt will be
restructured.



Portfolio Monitoring



Valuation process.
  Each quarter, we value investments in our portfolio, and such values are disclosed in reports filed with the SEC. Investments
for which market quotations are readily available are recorded at such market quotations. With respect to investments for which
market quotations are not readily available, our board of directors will determine the fair value of such investments in good faith,
utilizing the input of our valuation committee, our Manager and any other professionals or materials that our board of directors
deems worthy and relevant, including independent third-party valuation firms, if applicable.



Managerial assistance.
As a BDC, we must offer, and provide upon request, managerial assistance to certain of our portfolio companies. This assistance
could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management
meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance.
Depending on the nature of the assistance required, our Manager will provide such managerial assistance on our behalf to portfolio
companies that request this assistance. To the extent fees are paid for these services, we, rather than our Manager, will retain
any fees paid for such assistance.



Determination of Net Asset Value



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 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, we 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
| | - | -------------------------------------------------------------------------------------------------------------------



| | • | our board of directors discuss valuations and determine 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 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.



7







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 a market participant that holds the asset or owes the liability. 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 company 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.



Determinations in Connection With Offerings



We offer our shares
on a continuous basis at a current offering price of $10.15 per share; however, to the extent that our net asset value increases,
we will sell at a price necessary to ensure that shares are not sold at a price per share, after deduction of selling commissions
and dealer manager fees, that is below the net asset value per share. The closings are typically on a semi-monthly basis. To the
extent that the net asset value per share increases subsequent to the last closing, the price per share may increase. Therefore,
persons who subscribe for shares of our common stock in our continuous offering must submit subscriptions for a certain dollar
amount, rather than a number of shares of common stock and, as a result, may receive fractional shares of our common stock. In
connection with each closing on the sale of shares of our common stock offered pursuant to our prospectus on a continuous basis,
the board of directors or a committee thereof is required within 48 hours of the time that each closing and sale is made to make
the determination that we are not selling shares of our common stock at a price which, after deducting selling commissions and
dealer manager fees, is below our then current net asset value per share. The board of directors or a committee thereof will consider
the following factors, among others, in making such determination:



| | • | the net asset value of our common stock disclosed in the most recent periodic report we filed with the SEC;
| | - | -----------------------------------------------------------------------------------------------------------



| | • | our management’s assessment of whether any material change in the net asset value has occurred (including through the realization of net gains on the sale of our portfolio investments) from the period beginning on the date of the most recently disclosed net asset value to the period ending two days prior to the date of the closing on and sale of our common stock; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the magnitude of the difference between the net asset value disclosed in the most recent periodic report we filed with the SEC and our management’s assessment of any material change in the net asset value since the date of the most recently disclosed net asset value, and the offering price of the shares of our common stock at the date of closing.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Importantly, this determination
does not require that we calculate net asset value in connection with each closing and sale of shares of our common stock, but
instead it involves the determination by the board of directors or a committee thereof that we are not selling shares of our common
stock at a price which, after deducting selling commissions and dealer manager fees, is below the then current net asset value
at the time at which the closing and sale is made.



Moreover, to the extent
that there is even a remote possibility that we may (i) issue shares of our common stock at a price which, after deducting selling
commissions and dealer manager fees, is below the then current net asset value of our common stock at the time at which the closing
and sale is made or (ii) trigger the undertaking (which we provided to the SEC in the registration statement to which our prospectus
is a part) to suspend the offering of shares of our common stock pursuant to our prospectus if the net asset value fluctuates by
certain amounts in certain circumstances until our prospectus is amended, the board of directors or a committee thereof will elect,
in the case of clause (i) above, either to postpone the closing until such time that there is no longer the possibility of the
occurrence of such event or to undertake to determine net asset value within two days prior to any such sale to ensure that such
sale will not be at a price which, after deducting selling commissions and dealer manager fees, is below our then current net asset
value, and, in the case of clause (ii) above, to comply with such undertaking or to undertake to determine net asset value to ensure
that such undertaking has not been triggered.



These processes and
procedures are part of our compliance policies and procedures. Records will be made contemporaneously with all determinations described
in this section and these records will be maintained with other records we are required to maintain under the 1940 Act. Promptly
following any adjustment to the offering price per share of our common stock, we will update our prospectus by filing a prospectus
supplement with the SEC. We will also make updated information available via our website.



8







Election to be taxed as a Regulated
Investment Company (RIC)



We have elected to
be treated as a RIC under Subchapter M of the Code effective for our taxable year ended December 31, 2013, and to annually qualify
as a RIC thereafter. 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 (as described below). 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.



In order to qualify
as a RIC for U.S. federal income tax purposes, we must, among other things:



| | • | elect to be treated as a RIC;
| | - | -----------------------------



| | • | meet the Annual Distribution Requirement;
| | - | -----------------------------------------



| | • | qualify to be treated as a BDC or be registered as a management investment company under the 1940 Act at all times during each taxable year;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



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



| | • | diversify our holdings so that at the end of each quarter of the taxable year (i) at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified publicly traded partnership”); and (ii) no more than 25% of the value of our assets is invested in the securities, other than U.S. Government securities or securities of other RICs, (i) of one issuer (ii) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) of one or more “qualified publicly traded partnerships,” or the Diversification Tests.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Provided that we qualify
as a RIC and satisfy the Annual Distribution Requirement, we will not be subject to U.S. federal income tax on the portion of our
investment company taxable income and net capital gain (which we define as net long-term capital gain in excess of net short-term
capital loss) that we timely distribute to stockholders. We will be subject to U.S. federal income tax at the regular corporate
rates on any income or capital gain not distributed (or deemed distributed) to our stockholders.



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



Overview of Our Manager



Our investment activities
are managed by our Manager who is registered as an investment adviser under the Investment Advisers Act of 1940. 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
Mr. Chandhoke, who also serves as our Chief Executive Officer, and Mr. Shea, Managing Partner of VII Peaks Capital, LLC. They are
supported by the Manager’s team of employees, including investment professionals who have extensive experience in underwriting
and issuing debt products that include high-yield, bank debt and convertible debt and have acted as financial advisers to private
equity funds, venture capital firms and corporations in mergers and acquisitions, recapitalization and corporate finance transactions,
and have served as principal investors 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 routinely meets to discuss new and existing opportunities and developments on current investments. Our
investment committee is currently led by Mr. Chandhoke, who also serves as our Chief Executive Officer, and Mr. Shea, a managing
Partner of VII Peaks Capital, LLC.



Management Services and Responsibilities



Under the terms of
the investment advisory agreement, our Manager:



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



9







| | • | determines what securities we will purchase, retain or sell;
| | - | ------------------------------------------------------------



| | • | identifies, evaluates, negotiates and structures the investments we make; and
| | - | -----------------------------------------------------------------------------



| | • | executes, monitors and services the investments we make.
| | - | --------------------------------------------------------



Under the investment
advisory agreement, the Manager has a fiduciary responsibility for the safeguarding and use of our assets. The Manager is also
subject to liability under both the 1940 Act and the Advisers Act for a breach of these fiduciary duties.



Our Manager’s
services under the investment advisory agreement may not be exclusive, and it is free to furnish similar services to other entities
so long as its services to us are not impaired. In addition, our Manager performs certain administrative services under the administration
agreement. See “Administration Agreement”.



Administration Agreement



Our Manager serves
as our administrator. Pursuant to an administration agreement, our Manager furnishes us with office facilities, equipment, clerical,
and record keeping services at such facilities. Under the administration agreement, our Manager also performs, or oversees the
performance of, our required administrative services, which include, among other things, being responsible for the financial records
which we are required to maintain and preparing reports to our stockholders. In addition, our Manager assists us in determining
and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of
reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional
services rendered to us by others. Under the administration agreement, we are obligated to reimburse our Manager for our allocable
portion of our Manager’s overhead in performing its obligations under the administration agreement, including rent, the fees
and expenses associated with performing compliance functions and the compensation of our chief financial officer and any administrative
support staff. Under the administration agreement, our Manager will also provide on our behalf managerial assistance to those portfolio
companies that request such assistance. The administration agreement may be terminated by either party without penalty upon 60
days’ written notice to the other party.



The administration
agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the
reckless disregard of its duties and obligations, our Manager and its officers, managers, partners, agents, employees, controlling
persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities,
costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering
of our Manager’s services under the administration agreement or otherwise as administrator for us.



License Agreements



We have entered into
a license agreement with VII Peaks under which VII Peaks has agreed to grant us a non-exclusive, royalty-free license to use the
names “VII Peaks” and “Co-Optivist.” Under these agreements, we will have a right to use the “VII
Peaks,” and “Co-Optivist” names for so long as our Manager or one of its affiliates remains our investment adviser.
Other than with respect to these limited licenses, we will have no legal right to the “VII Peaks,” and “Co-Optivist”
names. These license agreements will remain in effect for so long as the investment advisory agreement with our Manager is in effect.



Certain Relationship and Related Party
Transactions



Conflicts of interest
between the operation of the Company and other activities of the Manager and its affiliates and principals are expected to occur
from time to time. The Manager, in its sole judgment and discretion, will try to mitigate such potential adversity by the exercise
of its business judgment in an attempt to fulfill its obligations. However, the Manager has not developed, and does not expect
to develop, any formal process for resolving conflicts of interest. Such conflicts may include:



Competing Programs



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 the Company. 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 the Company, 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.



Further, the officers
of VII Peaks 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



As a BDC, we will be
subject to certain regulatory restrictions in making our investments. For example, we generally will not be 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 will be permitted to, and may co-invest in syndicated deals and
secondary loan market transactions where price is the only negotiated point.



10







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.



Compensation Arrangements



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 “Investment Advisory Agreement”.



Affiliated Dealer
Manager



Prior to August 20,
2013, the dealer manager for our offering was KBR Capital Markets, LLC, which was an affiliate of us and our Manager. This relationship
might have created conflicts in connection with KBR Capital Markets, LLC due diligence obligations under the federal securities
laws. As of August 20, 2013, the agreement with KBR was terminated due to KBR’s decision to discontinue operations. Effective
September 23, 2013 Axiom Capital Management, Inc. (the “Dealer Manager”) was selected as the new dealer manager for
the funds. Axiom Capital Management, Inc. is not an affiliate of the Fund or Manager.



Regulation



We have elected to
be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between
BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates
or underwriters and requires that a majority of the directors be persons other than “interested persons”, as that term
is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease
to be, or to withdraw our election as, a BDC unless approved by “a majority of our outstanding voting securities” as
defined in the 1940 Act.



We may invest up to
100% of our assets in securities acquired directly from issuers in privately negotiated transactions. We do not intend to acquire
securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, except for registered
money market funds we generally cannot acquire more than 3% of the voting stock of any investment company, invest more than 5%
of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total
assets in the securities of more than one investment company. With regard to that portion of our portfolio invested in securities
issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses.
None of our investment policies are fundamental and any may be changed without stockholder approval.



As a BDC, we may be
periodically examined by the SEC for compliance with the 1940 Act. Our Adviser is a registered investment adviser and is also subject
to examination by the SEC.



We are required to
provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore,
as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from
willful misconduct, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s
office.



Qualifying Assets



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



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



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



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



| | • | satisfies either of the following:
| | - | ----------------------------------



| | • | has a market capitalization of less than $250 million or does not have any class of securities listed on a national securities exchange; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



11







| | • | is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result thereof, the BDC has an affiliated person who is a director of the eligible portfolio company.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Securities of any eligible portfolio company which we control.
| | - | --------------------------------------------------------------



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



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



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



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



Managerial Assistance to Portfolio Companies



A BDC must have been
organized and have its principal place of business in the United States and must be operated for the purpose of making investments
in the types of securities described in “Regulation – Qualifying Assets” above. However, in order to count portfolio
securities as qualifying assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must
offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial
assistance. Where the BDC purchases such securities in conjunction with one or more other persons acting together, the BDC will
satisfy this test if one of the other persons in the group makes available such managerial assistance. Making available managerial
assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to
provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business
objectives and policies of a portfolio company.



Temporary Investments



Pending investment
in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S.
Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer
to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we invest in money market
funds which invest in highly rated commercial paper, U.S. Government agency notes, U.S. Treasury bills or in repurchase agreements
relating to such securities that are fully collateralized by cash or securities issued by the U.S. Government or its agencies.
A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement
by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount
that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested
in such repurchase agreements. However, certain diversification tests in order to qualify as a RIC for federal income tax purposes
will typically require us to limit the amount we invest with any one counterparty. Our Manager will monitor the creditworthiness
of the counterparties with which we enter into repurchase agreement transactions.



Senior Securities



We are permitted, under
specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset
coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any preferred
stock or publicly traded debt securities are outstanding, we may be prohibited from making distributions to our stockholders or
the repurchasing of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution
or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without
regard to asset coverage.



Code of Ethics



We and our Manager
have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments
and restricts certain personal securities transactions. Personnel subject to each code may invest in securities for their personal
investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance
with the code’s requirements. You may read and copy the code of ethics at the SEC’s Public Reference Room in Washington,
D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. In addition,
the code of ethics is attached as an exhibit to the registration statement of which the prospectus is a part, and is available
on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. You may also obtain copies of the
code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.



12







Compliance Policies and Procedures



We have adopted and
implemented written policies and procedures reasonably designed to prevent violation of the federal securities laws. We are required
to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation. Our
Chief Compliance Officer is responsible for administering these policies and procedures.



Proxy Voting Policies and Procedures



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



Introduction



Our Manager is registered
with the SEC as an investment adviser registered under the Advisers Act. As an investment advisor registered under the Advisers
Act, our Manager has fiduciary duties to us. As part of this duty, our Manager recognizes that it must vote client securities in
a timely manner free of conflicts of interest and in our best interests and the best interests of our stockholders. Our Manager’s
Proxy Voting Policies and Procedures have been formulated to ensure decision-making consistent with these fiduciary duties.



These policies and
procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6
under, the Advisers Act.



Proxy Policies



Our Manager evaluates
routine proxy matters, such as proxy proposals, amendments or resolutions on a case-by-case basis. Routine matters are typically
proposed by management and our Manager will normally support such matters so long as they do not measurably change the structure,
management control, or operation of the corporation and are consistent with industry standards as well as the corporate laws of
the state of incorporation.



Our Manager also evaluates
non-routine matters on a case-by-case basis. Non-routine proposals concerning social issues are typically proposed by stockholders
who believe that the corporation’s internally adopted policies are ill-advised or misguided. If our Manager has determined
that management is generally socially responsible, our Manager will generally vote against these types of non-routine proposals.
Non-routine proposals concerning financial or corporate issues are usually offered by management and seek to change a corporation’s
legal, business or financial structure. Our Manager will generally vote in favor of such proposals provided the position of current
stockholders is preserved or enhanced. Non-routine proposals concerning stockholder rights are made regularly by both management
and stockholders. They can be generalized as involving issues that transfer or realign board or stockholder voting power. Our Manager
typically would oppose any proposal aimed solely at thwarting potential takeovers by requiring, for example, super-majority approval.
At the same time, our Manager believes stability and continuity promote profitability. Our Manager’s guidelines in this area
seek a middle road and individual proposals will be carefully assessed in the context of their particular circumstances. If a vote
may involve a material conflict of interest, prior to approving such vote, our Manager must consult with its Chief Compliance Officer
to determine whether the potential conflict is material and if so, the appropriate method to resolve such conflict. If the conflict
is determined not to be material, our Manager’s employees shall vote the proxy in accordance with our Manager’s proxy
voting policy.



Proxy Voting Records



You may obtain information
about how we voted proxies by making a written request for proxy voting information to:



Chief Compliance
Officer

VII Peaks
Co-Optivist Income BDC II, Inc.

100 Pine
Street, Suite 500

San Francisco,
California 94111



Available Information



We have filed a registration
statement with the SEC on Form N-2, including amendments, relating to the shares we are offering. We have filed a prospectus with
the SEC. The prospectus does not contain all of the information set forth in the registration statement, including any exhibits
and schedules it may contain. For further information concerning us or the shares we are offering, please refer to the registration
statement and prospectus. Statements contained in the prospectus and this 10-K/A as to the contents of any contract or other document
referred to are not necessarily complete and in each instance reference is made to the copy of any contract or other document filed
as an exhibit to the registration statement or prospectus. Each statement is qualified in all respects by this reference. Any stockholder
and its designated representative are permitted access to our records to which it is entitled under applicable law by all reasonable
times, and may inspect and copy any of them for a reasonable charge. Please see our charter and bylaws for additional information
regarding stockholders’ rights to access our records.



13







We are required to
file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the
informational requirements of the Securities Exchange Act of 1934. You may inspect and copy these reports, proxy statements and
other information, as well as the registration statement and prospectus with all related exhibits and schedules at the Public Reference
Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. Copies of these reports, proxy and information statements and other information may
be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing
the SEC’s Public Reference Section, Washington, D.C. 20549-0102. In addition, the SEC maintains an Internet website that
contains reports, proxy and information statements and other information filed electronically by us with the SEC at http://www.sec.gov.



Our Manager provides quarterly reports
to shareholders within 60 days after the end of each quarter. Our manager shall also provide an annual report to shareholders within
120 days after the end of each fiscal year. These reports will also be available on the SEC’s website at www.sec.gov. These
reports should not be considered a part of or as incorporated by reference in the prospectus or registration statement of which
the prospectus is a part.



ITEM 1A. RISK FACTORS



An investment in shares
of our common stock involves a high degree of risk and may be considered speculative. The risks set forth below are not the only
risks we face. If any of the following risks occur, our business and financial condition could be materially adversely affected.
In such case, the net asset value of our common stock could decline, and you may lose all or part of your investment.



Risks Related to Our Business and Structure



We are a recently formed entity with
limited operating history and revenues, and you have a limited `basis on which to evaluate our ability to achieve our business
objectives.



We were formed on
2011, and commenced operations in July 2012 when we raised an aggregate of $1.0 million from investors unaffiliated with us or
our Manager. Because we lack an extended operating history, there is a limited basis on which to evaluate our ability to achieve
our business objectives. We are subject to all of the business risks and uncertainties associated with any new business, including
the risk that we will not achieve our investment objectives and that the value of our common shares could decline substantially.



We face competition for investment
opportunities.



We face competition
for investment opportunities from a range of competitors, including mutual funds, private equity, hedge funds, and leveraged buyout
funds. Many of these entities may have greater financial resources than we do or access to financing on more favorable terms than
we will. These entities could make it more difficult or expensive to make investments in the debt securities of our target company
at appropriate price levels.



We face competition for assets to
manage.



We face competition
from a range of competitors, including mutual funds, private equity, hedge funds, and leveraged buyout funds, for assets to manage.
Many of these entities may have greater financial resources than we do or access to financing on more favorable terms than we will.
Our operating expenses are relatively fixed, and therefore we will have a higher expense ratio, which will decrease returns to
shareholders, to extent we are unable to increase the amount of assets that we manage.



Our board of directors has full authority
and discretion over the timing and amount of distributions we make, and it may decide to reduce or eliminate distributions at any
time, which may have an adverse affect on your investment.



To the extent that
we have income available, we will continue to authorize and declare distributions with record and payment dates distributions
on a semi-monthly basis to our shareholders. Our distributions, if any, will be determined by our board of directors. There can
be no assurances that we will be able to make distributions or, to the extent we make distributions, the level of distributions
declared and paid to our shareholders or our ability to pay distributions. The target companies in which we invest will generally
have near-term liquidity issues that make investments in them highly speculative. If one or more of our investments in our target
companies is not successful, it may adversely impact our ability to make distributions to shareholders.



If we are unsuccessful in raising
significant proceeds in our ongoing, continuous “best efforts” public offering, we will be limited in the number and
type of investments we may make, and the value of your investment in us may be reduced in the event our assets under-perform.



Our continuous offering
is being made on a best efforts basis, whereby the dealer manager and broker-dealers participating in the offering are only required
to use their best efforts to sell our shares and have no firm commitment or obligation to purchase any of the shares. To the extent
that less than the maximum number of shares is subscribed for, the opportunity for the allocation of our investments among various
issuers and industries may be decreased, and the returns achieved on those investments may be reduced as a result of allocating
all of our expenses over a smaller capital base.



Purchases of debt securities of financially
stressed companies create an enhanced risk of substantial loss or loss of entire investment.



We may purchase debt
securities of companies that are experiencing significant financial or business stress, including companies involved in bankruptcy
or other reorganization and liquidation proceedings. Such purchases involve a substantial degree of risk and may not show any return
for a considerable period of time. In fact, many of these instruments ordinarily remain unpaid unless and until the company reorganizes
and/or emerges from bankruptcy proceedings, and as a result may have to be held for an extended period of time. The level of analytical
sophistication, both financial and legal, necessary for successful investment in companies experiencing significant business and
financial stress is unusually high. There is no assurance that we will correctly evaluate the nature and magnitude of the various
factors that could affect the prospects for a successful reorganization or similar action. In any reorganization or liquidation
proceeding relating to a company in which we invest, we may lose our entire investment or may be required to accept cash or securities
with a value less than our original investment. Under such circumstances, the returns generated from our investments may not compensate
shareholders adequately for the risks assumed.



14







Resources could be expended in researching
investment opportunities that are not consummated, which could materially adversely affect subsequent attempts to locate and invest
in other businesses.



It is anticipated that
the investigation of each specific target company and the negotiation, drafting, and execution of relevant agreements, disclosure
documents, and other instruments necessary to restructure and de-lever their balance sheets will require substantial management
time and attention and substantial costs for accountants, attorneys, and others. If a decision is made not to complete a specific
investment, the costs incurred up to that point for the proposed transaction may not be recoverable. Furthermore, even if an agreement
is reached relating to a specific target company, we may fail to consummate the transaction for any number of reasons including
those beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely
affect subsequent attempts to locate additional investment opportunities.



The recovery from the 2008 and 2009
recession remains challenging.



Beginning in the third
quarter of 2007, global credit and other financial markets suffered substantial stress, volatility, illiquidity and disruption.
These forces reached extraordinary levels in late 2008, resulting in the bankruptcy of, the acquisition of, or government intervention
in the affairs of several major domestic and international financial institutions. In particular, the financial services sector
was negatively impacted by significant write-offs as the value of the assets held by financial firms declined, impairing their
capital positions and abilities to lend and invest. We believe that such value declines were exacerbated by widespread forced liquidations
as leveraged holders of financial assets, faced with declining prices, were compelled to sell to meet margin requirements and maintain
compliance with applicable capital standards. Such forced liquidations also impaired or eliminated many investors and investment
vehicles, leading to a decline in the supply of capital for investment and depressed pricing levels for many assets. These events
significantly diminished overall confidence in the debt and equity markets, engendered unprecedented declines in the values of
certain assets, and caused extreme economic uncertainty.



According to a D&B Global Economic Outlook,
economic activity following the 2008 – 2009 recession will continue to make slow progress over the next five years. The significant
restructuring of the US private sector is a chief driver, resulting in slowing bankruptcies across most sectors and improved payment
performance. Furthermore, the boom in unconventional gas and oil in the US is driving down energy prices, boosting business confidence
and supporting growth in key sectors. Despite this cautious optimism, a number of risks remain including high levels of debt, particularly
in the public sector. The increase in public sector debt since 2008 is concerning, as governments ramped up spending to boost the
economic growth. As a result, government spending in many countries will remain constrained and tax levels high over the next few
years a governments attempt to balance their books. This will, in turn, constrain growth in economies such as the US, where private
sector restructuring has begun. There also may be some longer-term unintended consequences of quantitative easing policies, including
excessive risk-taking. Already, yields between high-risk bonds and US treasuries are narrowing, stock markets have boomed in many
countries, speculative activity in commodity markets are keeping prices higher than fundamentals would dictate.



A potential downgrade in the U.S.’s credit rating
by a second rating agency and very slow growth with continued high unemployment in Europe could materially adversely affect our
business, financial condition and results of operations.



On August 5, 2011,
Standard & Poor’s downgraded the U.S.’s credit rating to AA+ from its top rank of AAA, resulting in an immediate
drop in the Dow of 2,000 and gold soaring to $1,895 an ounce. Standard & Poor’s downgrading was largely due to lack of
political backbone to come together to reduce spending and debt and balance the budget, while keeping the economy growing. The
current U.S. debt ceiling and budget deficit concerns have increased the possibility of further credit-rating agency downgrades,
such as from Fitch Ratings, warning that the repeated casting of uncertainty over the full faith and credit of the U.S. risks undermines
confidence in the U.S. Dollar. On the plus side, Fitch Rating is considering the U.S economy has experienced a 1.9% GDP growth
in 2013, according the Bureau of Economic Analysis advance estimates, with projections for a 3% GDP growth in 2014, according to
the Congressional Budget Office. Further, the U.S. dollar is still the most liquid in the world. On the minus side for a potential
Fitch Rating downgrade, Fitch has indicated that the continued political environment is not a characteristic of an AAA sovereign.
Additionally, Fitch Ratings noted that the U.S. is the most heavily indebted AAA rated sovereign, with a gross debt ratio equivalent
to double that of the AAA median. The potential downgrade from Fitch Ratings with the current S&P rating of the U.S.’s
credit, together with signs of deteriorating sovereign debt and conditions in Europe, could have a material adverse effect on the
financial markets and economic conditions in the U.S. and throughout the world. Additionally, austerity measures necessary to reduce
the U.S.’s deficit could accelerate an already slowing U.S. economy in the near term.



The U.S.’s S&P credit rating
downgrade and potential same from Fitch Ratings could negatively impact the trading market for U.S. government securities and would
likely impact the credit risk associated with our investments in U.S. Treasury securities. This could reduce the value of the U.S.
Treasury securities that we may hold in our portfolio. In addition, adverse market and economic conditions that could occur due
to a downgrade of the U.S.’s credit rating on the U.S.’s debt could result in rapidly rising interest rates, a falling
dollar, shakier financial markets and slowing or negative economic growth in the near term. These events could adversely affect
our business in many ways, including, but not limited to, adversely impacting our portfolio companies’ ability to obtain
financing, or obtaining financing but at significantly lower valuations than the preceding financing rounds. If any of these events
were to occur, it could materially adversely affect our business, financial condition and results of operations.



15







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



Under the 1940 Act,
we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value
as determined by our board of directors. We expect that a substantial portion of our investments will not trade on a national securities
exchange or actively trade on a secondary market, but instead will trade on a privately negotiated over-the-counter secondary market
for institutional investors. As a result, we will value these securities quarterly at fair value as determined in good faith by
our board of directors.



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



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



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



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



As a public company, we are subject
to regulations not applicable to private companies, such as provisions of the Sarbanes-Oxley Act. Efforts to comply with such regulations
will involve significant expenditures, and non-compliance with such regulations may adversely affect us.



We are subject to regulations
not applicable to private companies, including provisions of the Sarbanes-Oxley Act and the related rules and regulations promulgated
by the SEC. Beginning with our fiscal year ending December 31, 2013, our management will be required to report on our internal
control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder.
We will be required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis,
to evaluate and disclose changes in our internal control over financial reporting. As a newly-formed company, developing an effective
system of internal controls may require significant expenditures, which may negatively impact our financial performance and our
ability to make distributions. This process will also result in a diversion of management’s time and attention. We cannot
be certain as to the timing of the completion of our evaluation, testing and remediation actions or the impact of the same on our
operations and we may not be able to ensure that the process is effective or that our internal control over financial reporting
is or will be effective in a timely manner. In the event that we are unable to develop or maintain an effective system of internal
controls and maintain or achieve compliance with the Sarbanes-Oxley Act and related rules, we may be adversely affected.



The impact of recent financial reform
legislation on us is uncertain.



In light of current
conditions in the U.S. and global financial markets and the U.S. and global economy, legislators, the presidential administration
and regulators have increased their focus on the regulation of the financial services industry. The recently enacted Dodd-Frank
Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, institutes a wide range of reforms that will have an impact
on all financial institutions. Many of the requirements called for in the Dodd-Frank Act will be implemented over time, most of
which will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner
in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the
full impact such requirements will have on our business, results of operations or financial condition is unclear. The changes resulting
from the Dodd-Frank Act may require us to invest significant management attention and resources to evaluate and make necessary
changes in order to comply with new statutory and regulatory requirements. Failure to comply with any such laws, regulations or
principles, or changes thereto, may negatively impact our business, results of operations and financial condition. While we cannot
predict what effect any changes in the laws or regulations or their interpretations would have on us as a result of the Dodd-Frank
Act, these changes could be materially adverse to us and our shareholders.



We may experience fluctuations in
our quarterly results.



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



16







Your interest in us will be diluted
if we issue additional shares, which could reduce the overall value of an investment in us.



Potential investors
will not have preemptive rights to any shares we issue in the future. Our certificate of incorporation authorizes us to issue 200,000,000
shares of common stock. Pursuant to our certificate of incorporation, a majority of our entire board of directors may amend our
certificate of incorporation to increase the number of authorized shares without shareholder approval. To the extent we issue additional
equity interests after an investor purchases shares of our common stock, an investor’s percentage ownership interest in us
will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our investments,
an investor may also experience dilution in the book value and fair value of his/her shares.



We may acquire various structured
financial instruments for purposes of “hedging” or reducing our risks, which may be costly and ineffective and could
reduce our cash available for distribution to our stockholders.



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



If we internalize our management
functions, your interest in us could be diluted, and we could incur other significant costs associated with being self-managed.



Our board of directors
may decide in the future to internalize our management functions. If we do so, we may elect to negotiate to acquire our Manager’s
assets and personnel. At this time, we cannot anticipate the form or amount of consideration or other terms relating to any such
acquisition. Such consideration could take many forms, including cash payments, promissory notes and shares of our common stock.
The payment of such consideration could result in dilution of your interests as a stockholder and could reduce the earnings per
share attributable to your investment.



In addition, while
we would no longer bear the costs of the various fees and expenses we expect to pay to our Manager under the investment advisory
agreement, we would incur the compensation and benefits costs of our officers and other employees and consultants that are being
paid by our Manager or its affiliates. In addition, we may issue equity awards to officers, employees and consultants. These awards
would decrease net income and may further dilute your investment. We cannot reasonably estimate the amount of fees we would save
or the costs we would incur if we became self-managed. If the expenses we assume as a result of an internalization are higher than
the expenses we avoid paying to our Manager, our earnings per share would be lower as a result of the internalization than it otherwise
would have been, potentially decreasing the amount of funds available to distribute to our stockholders and the value of our shares.
As we are currently organized, we do not have any employees. If we elect to internalize our operations, we would employ personnel
and would be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims and
other employee-related liabilities and grievances.



If we internalize our
management functions, we could have difficulty integrating these functions as a standalone entity. Currently, individuals employed
by our Manager and its affiliates perform asset management and general and administrative functions, including accounting and financial
reporting, for multiple entities. These personnel have a great deal of know-how and experience. We may fail to properly identify
the appropriate mix of personnel and capital needs to operate as a stand-alone entity. An inability to manage an internalization
transaction effectively could thus result in our incurring excess costs and/or suffering deficiencies in our disclosure controls
and procedures or our internal control over financial reporting. Such deficiencies could cause us to incur additional costs, and
our management’s attention could be diverted from effectively managing our investments.



In recent years, management
internalization transactions have been the subject of shareholder litigation. Shareholder litigation can be costly and time-consuming,
and there can be no assurance that any litigation expenses we might incur if we were to internalize our management functions would
not be significant or that the outcome of litigation would be favorable to us. Any amounts we are required to expend defending
any such litigation will reduce our net investment income.



Security breaches and other disruptions
could compromise our and our Manager’s information and expose us and our Manager to liability, which would cause our business
and reputation to suffer.



In the ordinary course
of our business, we and our Manager store sensitive data, including our proprietary business information and that of our portfolio
companies, and personally identifiable information of our directors, officers and other employees, in our and our Manager’s
data centers and networks. The secure processing, maintenance and transmission of this information is important to our and our
Manager’s operations and business strategy. Despite our security measures, our and our Manager’s information technology
and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.
Any such breach could compromise our and our Manager’s networks and the information stored there could be accessed, publicly
disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings,
liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations, and damage
our and our Manager’s reputations, and cause a loss of confidence in us and our Manager’s products and services, which
could adversely affect our business.



17







Risks Related to our Manager



Our Manager has limited prior experience
managing a BDC or a RIC.



Our Manager is a new
entity and has limited prior experience managing a BDC or a RIC. Similarly, members of our Manager’s management team, including
our Chief Executive Officer and our Chief Financial Officer, have no prior experience managing a BDC or RIC. Therefore, our Manager
and its management team may not be able to successfully operate our business or achieve our investment objectives. As a result,
an investment in our shares may entail more risk than the shares of a comparable company with a substantial operating history.



The 1940 Act and the
Code impose numerous constraints on the operations of BDCs and RICs that do not apply to the other types of investment vehicles.
For example, under the 1940 Act, BDCs are required to invest at least 70% of their total assets primarily in securities of qualifying
U.S. private or thinly traded companies. Moreover, qualification for RIC tax treatment under subchapter M of the Code requires
satisfaction of source-of-income, diversification and other requirements. The failure to comply with these provisions in a timely
manner could prevent us from qualifying as a BDC or a RIC or could force us to pay unexpected taxes and penalties, which could
be material. Our Manager has no experience managing a BDC or RIC. Its lack of experience in managing a portfolio of assets under
such constraints may hinder its ability to take advantage of attractive investment opportunities and, as a result, achieve our
investment objectives.



Members of our Manager’s management
team may engage in other activities that compete with us.



The officers of our
Manager anticipate devoting a significant portion of their time to the affairs of our Manager and performing services for other
entities. 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.



Further, the officers
of VII Peaks are involved in other ventures, some of which may compete with us for investment opportunities 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 Axiom may also be involved in other ventures, some of which may compete with us for investment opportunities.



Our Manager will receive compensation
regardless of profitability.



Our Manager is entitled
to receive certain fees and other compensation, payments and reimbursements regardless of us being profitable. For example, we
will pay our Manager an annualized management fee calculated as follows and payable monthly in arrears:



| | • | 2.00% if our net assets are below $100 million;
| | - | -----------------------------------------------



| | • | 1.75% if our net assets are between $100 million and $250 million; and
| | - | ----------------------------------------------------------------------



| | • | 1.50% if our net assets are above $250 million.
| | - | -----------------------------------------------



The management fee
will be calculated based on the net asset value of our assets under management as of the last business day of each month and paid
monthly in arrears.



We may be obligated to pay our Manager
incentive compensation even if we incur a net loss due to a decline in the value of our portfolio.



Our investment advisory agreement
entitles our Manager to receive an incentive fee based on our net investment income regardless of any capital losses. In such case,
we may be required to pay our Manager an incentive fee for a fiscal quarter even if there is a decline in the value of our portfolio
or if we incur a net loss for that quarter. Any incentive fee payable by us that relates to our net investment income may be computed
and paid on income that may include interest that has been accrued but not yet received. If a portfolio company defaults on a loan
that is structured to provide accrued interest, it is possible that accrued interest previously included in the calculation of
the incentive fee will become uncollectible. Our Manager is not obligated to reimburse us for any part of the incentive fee it
received that was based on accrued income that we never received as a result of a subsequent default. Such circumstances would
result in us paying an incentive fee on income we never receive captured in one reporting period, with the related reduction in
the incentive fee paid in the subsequent period.



For federal income
tax purposes, we are required to recognize taxable income in some circumstances in which we do not receive a corresponding payment
in cash (such as deferred interest that is accrued as original issue discount) and to make distributions with respect to such income
to maintain our status as a RIC. Under such circumstances, we may have difficulty meeting the annual distribution requirement necessary
to obtain and maintain RIC tax treatment under the Code. This difficulty in making the required distribution may be amplified to
the extent that we are required to pay an incentive fee with respect to such accrued income. As a result, we may have to sell some
of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, or forgo
new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for
RIC tax treatment and thus become subject to corporate-level income tax.



18







Our incentive fee may induce our
Manager to make speculative investments.



The incentive fee payable
by us to our Manager may create an incentive for it to make investments on our behalf that are risky or more speculative than would
be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to our Manager is determined
may encourage it to use leverage to increase the return on our investments.



Shares of our common stock may be
purchased by the Manager or its affiliates.



Our Manager and its
affiliates may purchase shares of our common stock for any reason deemed appropriate; provided, however, that the Manager and its
affiliates will not purchase or hold more than 5% of our outstanding shares of common stock. The Manager and its affiliates will
not acquire any shares of our common stock with the intention to resell or re-distribute such shares. The purchase of shares by
the Manager or its affiliates could create certain risks, including, but not limited to, the following:



| | • | the Manager or its affiliates may have an interest in disposing of our assets at an earlier date so as to recover their investment in our shares; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | • | substantial purchases of shares by the Manager or its affiliates may limit the Manager’s ability to fulfill any financial obligations that it may have to or on our behalf.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Manager relies on key personnel,
the loss of any of whom could impair its ability to successfully manage us.



Our future success
depends, to a significant extent, on the continued services of the employees of our Manager or its affiliates. The loss of services
of one or more members of our Manager’s management team, including members of our investment committee, could adversely affect
our financial condition, business and results of operations.



The compensation we pay to our Manager
was determined without independent assessment on our behalf, and these terms may be less advantageous to us than if they had been
the subject of arm’s-length negotiations.



The compensation we
pay to our Manager was not entered into on an arm’s-length basis with an unaffiliated third party. 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 an unaffiliated third party. However, we believe that the terms of the base management fee that we pay our Manager
is generally more favorable to us than what most or all other externally-managed BDC’s pay their manager, and the terms of
the incentive fee on income and capital gains are roughly the same as what other externally-managed BDC’s pay their manager.



Our Manager’s influence on
conducting our operations, including on our conducting of transactions, gives it the ability to increase its fees, which may reduce
the amount of cash flow available for distribution to our shareholders.



Our Manager is paid
a management fee calculated as a percentage of our net assets and is unrelated to net income or any other performance base or measure.
Our Manager may advise us to consummate transactions or conduct our operations in a manner that, in our Manager’s reasonable
discretion, are in the best interests of our shareholders. These transactions, however, may increase the amount of fees paid to
our Manager. Our Manager’s ability to influence the management fee paid to it by us could reduce the amount of cash flow
available for distribution to our shareholders.



Risks Related to Business Development
Companies



The requirement that we invest a
sufficient portion of our assets in qualifying assets could preclude us from investing in accordance with our current business
strategy; conversely, the failure to invest a sufficient portion of our assets in qualifying assets could result in our failure
to maintain our status as a BDC.



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



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



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



19







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



As a result of the
annual distribution requirement to qualify as a RIC, we may need to periodically access the capital markets to raise cash to fund
new investments. We may issue “senior securities,” including borrowing money from banks or other financial institutions
only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence or issuance.
Our ability to issue different types of securities is also limited. Compliance with these requirements may unfavorably limit our
investment opportunities and reduce our ability in comparison to other companies to profit from favorable spreads between the
rates at which we can borrow and the rates at which we can lend. As a BDC, therefore, we continuously issue equity at a rate more
frequent than our privately owned competitors, which may lead to greater shareholder dilution.



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



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



Our ability
to enter into transactions with our affiliates will be restricted.



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



We are a non-diversified investment
company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that
may be invested in securities of a single issuer.



We are classified as
a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with
respect to the proportion of our assets that we may invest in securities of a single issuer. To the extent that we assume large
positions in the securities of a small number of issuers, or within a particular industry, our net asset value may fluctuate to
a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s
assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment
company. However, we will be subject to the diversification requirements applicable to RICs under Subchapter M of the Code.



Risks Related to our Target Investments



Our investments in prospective portfolio
companies may be risky, and we could lose all or part of our investment.



We intend to invest
primarily in senior secured loans, second lien secured loans and subordinated debt of private U.S. companies. We may also invest
in equity securities or securities of foreign companies.



Senior secured
loans and second lien secured loans. There is a risk that any collateral pledged by portfolio companies in which we have taken
a security interest may decrease in value over time or lose its entire value, may be difficult to sell in a timely manner, may
be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as
a result of the inability of the portfolio company to raise additional capital. To the extent our debt investment is collateralized
by the securities of a portfolio company’s subsidiaries, such securities may lose some or all of their value in the event
of the bankruptcy or insolvency of the portfolio company. Also, in some circumstances, our security interest may be contractually
or structurally subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial
condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value
of the collateral for the loan. Loans that are under-collateralized involve a greater risk of loss. Consequently, the fact that
a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms,
or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.



Subordinated
debt. Our subordinated debt investments will generally rank junior in priority of payment to senior loans and will generally
be unsecured. This may result in a heightened level of risk and volatility or a loss of principal, which could lead to the loss
of the entire investment. These investments may involve additional risks that could adversely affect our investment returns. To
the extent interest payments associated with such debt are deferred, such debt may be subject to greater fluctuations in valuations,
and such debt could subject us and our stockholders to non-cash income. Since we will not receive any principal repayments prior
to the maturity of some of our subordinated debt investments, such investments will be of greater risk than amortizing loans.



20







Equity investments.
We expect to make select equity investments. In addition, when we invest in senior secured and second lien secured loans or subordinated
debt, we may acquire warrants to purchase equity securities. The equity interests we receive may not appreciate in value and, in
fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do
realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.



Non-U.S. securities. We may invest in non-U.S. securities, which may include securities denominated in U.S. dollars or in non-U.S. currencies, to
the extent permitted by the 1940 Act. Because evidences of ownership of such securities usually are held outside the United States,
we would be subject to additional risks if we invested in non-U.S. securities, which include possible adverse political and economic
developments, seizure or nationalization of foreign deposits and adoption of governmental restrictions which might adversely affect
or restrict the payment of principal and interest on the non-U.S. securities to investors located outside the country of the issuer,
whether from currency blockage or otherwise. Since non-U.S. securities may be purchased with and payable in foreign currencies,
the value of these assets as measured in U.S. dollars may be affected unfavorably by changes in currency rates and exchange control
regulations.



In addition, we invest
in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were
rated. Below investment grade securities, which are often referred to as “junk,” have predominantly speculative characteristics
with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to value and illiquid.



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



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



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



If one of our portfolio
companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided managerial
assistance to that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion
of our claim to that of other creditors. In situations where a bankruptcy carries a high degree of political significance, our
legal rights may be subordinated to other creditors. We may also be subject to lender liability claims for actions taken by us
with respect to a borrower’s business or in instances where we exercise control over the borrower or render significant managerial
assistance.



Second priority liens on collateral
securing debt investments that we own may be subject to control by senior creditors with first priority liens. If there is a default,
the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.



Certain debt investments
that we own may be secured on a second priority basis by the same collateral securing first priority debt of such companies. The
first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt
and may secure certain other future debt that may be permitted to be incurred by such company under the agreements governing the
loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation
of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us. In
addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability
of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral
would be sufficient to satisfy the debt obligations secured by the second priority liens after payment in full of all obligations
secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the
debt obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral,
will only have an unsecured claim against such company’s remaining assets, if any.



The rights we may
have with respect to the collateral securing the debt investments we own with senior debt outstanding may also be limited pursuant
to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor
agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following
actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the
first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control
the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers
of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights
are adversely affected.



21







We do not expect to control our portfolio
companies.



We do not expect to
control our portfolio companies. As a result, we are subject to the risk that a portfolio company in which we invest may make business
decisions with which we disagree and the management of such company, as representatives of the holders of their common equity,
may take risks or otherwise act in ways that do not serve our interests as debt investors. Due to the limited liquidity for our
debt investments in our portfolio companies, we may not be able to dispose of our interests in our portfolio companies as readily
as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions that could decrease the value
of our portfolio holdings.



We will be exposed to risks associated
with changes in interest rates.



We are subject to financial
market risks, including changes in interest rates. We expect our portfolio to be predominantly composed of fixed-rate high-yield
and equity-linked corporate debt securities, but 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. Accordingly, general interest rate fluctuations may have a substantial negative impact on our investments
and investment opportunities and, therefore may have a material adverse effect on our investment objectives and our rate of return
on invested capital.



We invest a portion of our assets
in privately held companies which presents certain challenges, including the lack of available information about these companies.



We invest a portion
of our assets in privately held companies. Investments in private companies pose certain incremental risks as compared to investments
in public companies including that they:



| | • | have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | • | may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | may have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and changing market conditions, as well as general economic downturns;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, directors and members of our Manager’s management team may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, investments
in private companies tend to be less liquid. The securities of private companies are often not publicly traded or actively traded
on the secondary market and are, instead, traded on a privately negotiated over-the-counter secondary market for institutional
investors. These privately negotiated over-the-counter secondary markets may be inactive during an economic downturn or a credit
crisis. In addition, the securities in these companies will be subject to legal and other restrictions on resale or will otherwise
be less liquid than publicly traded securities. Also, under the 1940 Act, if there is no readily available market for these investments,
we are required to carry these investments at fair value as determined by our board of directors. As a result if we are required
to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously
recorded these investments. We may also face other restrictions on our ability to liquidate an investment in a portfolio company
to the extent that we, our Manager or any of their respective affiliates have material nonpublic information regarding such portfolio
company or where the sale would be an impermissible joint transaction. The reduced liquidity of our investments may make it difficult
for us to dispose of them at a favorable price, and, as a result, we may suffer losses.



Finally, little public
information generally exists about private companies and these companies may not have third-party debt ratings or audited financial
statements. We must therefore rely on the ability of our Manager to obtain adequate information through due diligence to evaluate
the creditworthiness and potential returns from investing in these companies. Additionally, these companies and their financial
information will not generally be subject to the Sarbanes-Oxley Act and other rules that govern public companies. If we are unable
to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose
money on our investments.



Economic recessions or downturns
could impair our portfolio companies and harm our operating results.



Many of our portfolio
companies may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods.
Therefore, our non-performing assets are likely to increase, and the value of our portfolio is likely to decrease, during these
periods. Adverse economic conditions may also decrease the value of any collateral securing our first lien or second lien secured
loans. A prolonged recession may further decrease the value of such collateral and result in losses of value in our portfolio and
a decrease in our revenues, net income and net asset value. Unfavorable economic conditions also could increase our funding costs,
limit our access to the capital markets or result in a decision by lenders not to extend credit to us on terms we deem acceptable.
These events could prevent us from increasing investments and harm our operating results.



22







A covenant breach by our portfolio
companies may harm our operating results.



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



An investment strategy focused primarily
on privately held companies presents certain challenges, including the lack of available information about these companies.



Our investments are primarily in privately-held
companies. Investments in private companies pose significantly greater risks than investments in public companies. First, private
companies have reduced access to the capital markets, resulting in diminished capital resources and the ability to withstand financial
distress. As a result, these companies, which may present greater credit risk than public companies, may be unable to meet their
obligations under their debt securities that we hold. Second, the investments themselves often may be less liquid. The securities
of many of the companies in which we invest are not publicly-traded or actively traded on the secondary market and are, instead,
traded on a privately negotiated over-the-counter secondary market for institutional investors. In addition, such securities may
be subject to legal and other restrictions on resale.



A lack of liquidity in certain of
our investments may adversely affect our business.



We invest in certain
companies whose securities are not publicly-traded or actively traded on the secondary market and are, instead, traded on a privately
negotiated over-the-counter secondary market for institutional investors and whose securities are subject to legal and other restrictions
on resale or are otherwise less liquid than publicly-traded securities. The illiquidity of certain of our investments may make
it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our
portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. The
reduced liquidity of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we
may suffer losses.



Certain macro-economic events may
adversely affect the value of our bond positions and thus may impair our investment performance.



The following risks
may adversely affect the value of our bond positions and thus may impair our investment performance:



| | • | Recession.   If the U.S. economy slides back into a recession it may cause a correction in bond prices driving them lower and increasing the cost of borrowing for companies.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Correction in U.S. Treasuries or Broader Bond Markets.   U.S. Treasuries and corporate bonds have seen a dramatic increase in prices over the past several quarters, driving down yields. A correction or trade out of these fixed income securities could correct bond prices across the board, from Treasuries to corporate debt.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Increase in Corporate Default Rates.   Corporate debt default rates and bankruptcy rates have remained relatively flat and remain at extremely low levels (less than 2%). Any significant increase in default rates would depress bond prices as corporate borrowing costs increase.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Inflation.   Core
inflation in the United States remains under 2%. However, a significant increase in inflation would reduce the real return of
debt securities, causing prices to drop.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Monetary Tightening and Rising Interest Rates.   The U.S. Federal Reserve continued its policy of quantitative easing, helping to spur liquidity in the capital markets. The policy has helped keep interest rates near an all-time low in the U.S. In late 2013, the Federal Reserve began tapering its bond purchases. Eventually, as the economy recovers, the Federal Reserve may begin the monetary tightening, causing an increase of interest rates that may drive down bond prices.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Devaluation of the U.S. Dollar.   We invest in the debt securities of issuers domiciled in the United States. As such, the debt securities that we purchase will pay coupons denominated in U.S. dollars. A significant devaluation of the U.S. dollar could lead to lower bond prices as real returns are diminished due to a devalued currency.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Risks Related to Our Continuous Offering
and Our Shares



This is a speculative investment.



Our business objectives
should be considered highly speculative, and there are no assurances that the Manager will satisfy those objectives. No assurances
can be given that the Manager will realize a substantial return, if any, on its investment purchases, or that you will not lose
your entire investment in us.



23







There is no market for the shares
of our common stock nor do we expect a market to develop in the foreseeable future, which adversely affects the liquidity and price
of our shares.



There is no market
for the shares of our common stock and no market for our shares is expected to develop in the foreseeable future. Shareholders
therefore have no access to information about prior market history on which to base their investment decision. As a result, shareholders
may be unable to sell their shares unless a market can be established and sustained.



If we are unable to raise substantial
funds in our continuous “best efforts” offering, we will be limited in the number and type of investments we may make,
and the value of your investment in us may be reduced in the event our assets under-perform.



Our continuous offering
is being made on a best efforts basis, whereby Axiom Capital Management, Inc. and any selected dealers who enter into agreements
with Axiom Capital Management, Inc. are only required to use their best efforts to sell our shares and have no firm commitment
or obligation to purchase any of our shares. To the extent that less than the maximum number of shares is sold, the opportunity
for diversification of our investments may be decreased and the returns achieved on those investments may be reduced as a result
of allocating all of our expenses among a smaller capital base.



Investors will not know the purchase
price per share at the time they submit their subscription agreements and could receive fewer shares than anticipated if our board
of directors determines to increase the offering price to comply with the requirement that we avoid selling our shares below net
asset value per share.



The purchase price
at which shareholders purchase shares of common stock will be determined at closing date to ensure that the sales price, after
deducting selling commissions and dealer manager fees, is equal to or greater than the net asset value of our shares. As a result,
in the event of an increase to our net asset value per share, an investor’s purchase price may be higher than the prior closing
price per share, and therefore shareholders may receive a smaller number of shares than if shareholders had subscribed at the prior
closing price.



Investors will not know the purchase
price per share at the time they submit their subscription agreements and could pay a premium for their shares of common stock
if our board of directors, or delegated committee, does not decrease the offering price in the event of a decline to our net asset
value per share.



The purchase price
at which shareholders purchase shares will be determined at each closing date to ensure that the sales price is equal to or greater
than the net asset value of our shares, after deducting selling commissions and dealer manager fees. In the event of a decrease
to our net asset value per share, shareholders could pay a premium for their shares of common stock if our board of directors,
or delegated committee, does not decrease the offering price. Closing dates are typically semi-annual.



The shares sold in our continuous
offering will not be listed on an exchange or quoted through a quotation system for the foreseeable future, if ever. Therefore,
if an investor purchase shares in our continuous offering, they will have limited liquidity and may not receive a full return of
their invested capital if they sell their shares.



The shares offered
by us are illiquid assets for which there is not expected to be any secondary market nor is it expected that any will develop in
the foreseeable future. Within four years following the completion of our public offering or any subsequent follow-on offering,
our board of directors is required to recommend that we pursue a liquidity event for our shareholders. However, there can be no
assurance that we will complete a liquidity event within such time or at all. A liquidity event could include: (i) a listing of
our shares on a national securities exchange; (ii) a merger or another transaction approved by our board of directors in which
our shareholders will receive cash or shares of a listed company; or (iii) a sale of all or substantially all of our assets either
on a complete portfolio basis or individually followed by a liquidation.



Prior to the completion
of a liquidity event, our tender offer program may provide a limited opportunity for investors to achieve liquidity, subject to
certain restrictions and limitations, at a price which may reflect a discount from the purchase price they paid for their shares
being repurchased.



In making a determination
of what type of liquidity event is in the best interest of our shareholders, our board of directors, including our independent
directors, may consider a variety of criteria, including, but not limited to, market conditions, portfolio diversification, portfolio
performance, our financial condition, potential access to capital as a listed company, market conditions for the sale of our assets
or listing of our shares, internal management requirements to become a perpetual life company and the potential for shareholder
liquidity. We can offer no assurance that we will be able to effect a liquidity event. Further, even if we do complete a liquidity
event, you may not receive a return of all of your invested capital.



We are not obligated to complete
a liquidity event by a specified date; therefore, it will be difficult for an investor to sell his or her shares.



Within four years following
the completion of our public offering or any subsequent follow-on offering, our board of directors is required to recommend that
we pursue a liquidity event for our shareholders. A liquidity event could include: (i) a listing of our shares on a national securities
exchange; (ii) a merger or another transaction approved by our board of directors in which our shareholders will receive cash or
shares of a listed company; or (iii) a sale of all or substantially all of our assets either on a complete portfolio basis or individually
followed by a liquidation. We expect that the liquidity event recommended by our board of directors will be completed within twelve
months following the recommendation by our board of directors. We do not know at this time what circumstances will exist in the
future and therefore we do not know what factors our board of directors will consider in determining what form of liquidity event
to pursue. There may be economic or other factors that negatively impact our ability to complete a liquidity event within this
timeframe or at all. As a result, it may be difficult for investors to sell their shares.



24







Our ability to successfully conduct
our continuous offering is dependent, in part, on the ability of Axiom Capital Management, Inc. to successfully establish, operate
and maintain a network of broker-dealers.



The success of our
public offering, and correspondingly our ability to implement our business strategy, is dependent upon the ability of Axiom Capital
Management, Inc. to establish and maintain a network of licensed securities broker-dealers and other agents to sell our shares.
If Axiom Capital Management, Inc. fails to perform, we may not be able to raise adequate proceeds through our public offering to
implement our investment strategy. If we are unsuccessful in implementing our investment strategy, shareholders could lose
all or a part of their investment.



Beginning with the fourth calendar
quarter of 2013, we began offering a repurchase program for shareholders shares on a quarterly basis. However, we are not required
to make repurchases and there can be no assurance we will do so. As a result shareholders may be unable to sell their shares
and, to the extent they are able to sell their shares under the tender offer program, they may not be able to recover the amount
of their investment in our shares.



Beginning with the
fourth calendar quarter of 2013, we began offering a repurchase program for shareholders to tender their shares on a quarterly
basis at a price equal to 90% of or current offering price as of the date of repurchase. To the extent that we make purchases,
the tender offer program will include numerous restrictions that limit their ability to sell their shares. We intend to limit the
number of shares repurchased pursuant to our proposed tender offer program as follows: (1) 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% in each quarter; (2) unless shareholders tender all of their shares, shareholders must tender at least 25%
of the amount of shares they have purchased in the offering and must maintain a minimum balance of $5,000 subsequent to submitting
a portion of their shares for repurchase by us; and (3) to the extent that the number of shares put to us for repurchase exceeds
the number of shares that we are able to purchase, we will repurchase shares on a pro rata basis, not on a first-come, first-served
basis. Further, we will have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions
under federal law or Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests
of solvency. These limits may prevent us from accommodating all repurchase requests made in any year. Our board of directors may
amend, suspend or terminate the tender offer program upon 30 days notice. We will notify shareholders of such developments (1)
in our quarterly reports or (2) by means of a separate mailing to shareholders, accompanied by disclosure in a current or periodic
report under the Exchange Act. In addition, although we have adopted a tender offer program, we have discretion to not repurchase
shareholders shares, to suspend the plan, and to cease repurchases. Further, the plan has many limitations and should not be relied
upon as a method to sell shares promptly and at a desired price.



The timing of our repurchase offers
pursuant to our tender offer program may be at a time that is disadvantageous to our shareholders.



When we make quarterly
repurchase offers pursuant to our tender offer program, we may offer to repurchase shares at a price that is lower than the price
that investors paid for shares in our offering. As a result, to the extent investors have the ability to sell their shares to us
as part of our tender offer program, the price at which an investor may sell shares, which will be equal to the net asset value
per share on the date of repurchase, may be lower than what an investor paid in connection with the purchase of shares in our offering.



In addition, in the
event an investor chooses to participate in our tender offer program, the investor will be required to provide us with notice of
intent to participate prior to knowing what the net asset value per share will be on the repurchase date. Although an investor
will have the ability to withdraw a repurchase request prior to the repurchase date, to the extent an investor seeks to sell shares
to us as part of our tender offer program, the investor will be required to do so without knowledge of what the repurchase price
of our shares will be on the repurchase date.



Various conflicts of interest exist
between us and the roles, activities and duties of the Manager and its affiliates.



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 the Company. 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.



Certain provisions of the Maryland
Corporation Law could deter takeover attempts.



Our bylaws exempt us
from the Maryland Control Share Acquisition Act, which significantly restricts the voting rights of control shares of a Maryland
corporation acquired in a control share acquisition. If our board of directors were to amend our bylaws to repeal this exemption
from the Maryland Control Share Acquisition Act, that statute may make it more difficult for a third party to obtain control of
us and increase the difficulty of consummating such a transaction. There can be no assurance, however, that we will not amend our
bylaws at some time in the future. We will not, however, amend our bylaws to make us subject to the Maryland Control Share Acquisition
Act without our board of directors determining that doing so would not conflict with the 1940 Act and obtaining confirmation from
the SEC that it does not object to that determination.



Additionally, our
board of directors may, without stockholder action, authorize the issuance of shares of stock in one or more classes or series,
including preferred stock. Our board of directors may also, without stockholder action, amend our articles of incorporation to
increase the number of shares of stock of any class or series that we have authority to issue. These anti-takeover provisions may
inhibit a change of control in circumstances that could give the holders of our common stock the opportunity to realize a premium
over the value of our common stock.



25







Risks Related to Taxation



We will be subject to corporate-level
income tax if we are unable to qualify as a RIC under Subchapter M of the Code or to satisfy RIC distribution requirements.



To maintain RIC tax
treatment under the Code, we must meet the following minimum annual distribution, income source and asset diversification requirements.



The minimum annual
distribution requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our
net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any.
We would also be taxed on any retained income and/or gains, including any short-term capital gains or long-term capital gains.
We must also satisfy an additional annual distribution requirement during each calendar year in order to avoid a 4% excise tax
on the amount of the under-distribution. Because we may use debt financing, we are subject to an asset coverage ratio requirement
under the 1940 Act and may in the future become subject to certain financial covenants under loan and credit agreements that could,
under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirements. If we are
unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment, or could be required to retain a portion
of our income or gains, and thus become subject to corporate-level income tax.



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



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



If we fail to qualify
for or maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially
reduce our net assets, the amount of income available for distribution, and the amount of our distributions.



If we do not qualify as a “publicly
offered regulated investment company,” as defined in the Code, shareholders will be taxed as though they received a distribution
of some of our expenses.



A “publicly offered
regulated investment company” is a RIC whose shares are either (i) continuously offered pursuant to a public offering, (ii)
regularly traded on an established securities market or (iii) held by at least 500 persons at all times during the taxable year.
If we are not a publicly offered RIC for any period, a non-corporate stockholder’s allocable portion of our affected expenses,
including our management fees, will be treated as an additional distribution to the stockholder and will be deductible by such
stockholder only to the extent permitted under the limitations described below. For non-corporate stockholders, including individuals,
trusts, and estates, significant limitations generally apply to the deductibility of certain expenses of a non-publicly offered
RIC, including advisory fees. In particular, these expenses, referred to as miscellaneous itemized deductions, are deductible to
an individual only to the extent they exceed 2% of such a stockholder’s adjusted gross income, and are not deductible for
alternative minimum tax purposes.



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



For federal income
tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment
in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount
(such as debt instruments with PIK, interest or, in certain cases, increasing interest rates or debt instruments that were issued
with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the
obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to
include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after
origination of the loan or are paid in non-cash compensation such as warrants or stock. Furthermore, we may invest in non-U.S.
corporations (or other non-U.S. entities treated as corporations for U.S. federal income tax purposes) that could be treated under
the Code and U.S. Treasury regulations as “passive foreign investment companies” and/or “controlled foreign corporations.”
The rules relating to investment in these types of non-U.S. entities are designed to ensure that U.S. taxpayers are either, in
effect, taxed currently (or on an accelerated basis with respect to corporate level events) or taxed at increased tax rates at
distribution or disposition. In certain circumstances this could require us to recognize income where we do not receive a corresponding
payment in cash.



We anticipate that
a portion of our income may constitute original issue discount or other income required to be included in taxable income prior
to receipt of cash. Further, we may elect to amortize market discounts and include such amounts in our taxable income in the current
year, instead of upon disposition, as an election not to do so would limit our ability to deduct interest expenses for tax purposes.



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



26







ITEM 1B. UNRESOLVED STAFF COMMENTS



Not applicable.



ITEM 2. PROPERTIES



We do not own any real
estate or other physical properties materially important to our operation. Our executive offices are located at 100 Pine Street,
Suite 500, San Francisco, California 94111. We believe that our current office facilities are adequate for our business as we intend
to conduct it.



ITEM 3. LEGAL PROCEEDINGS



Neither we nor our
Manager are currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened
against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings
relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings
cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition
or results of operations.



ITEM 4. MINE SAFETY DISCLOSURES



Not applicable.



Part II



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



Our authorized stock
consists of 250,000,000 shares of stock, par value $0.001 per share, of which 200,000,000 shares are classified as common stock
and 50,000,000 shares are classified as preferred stock. There is currently no market for our common stock, and we do not expect
that a market for our shares will develop in the future. No stock has been authorized for issuance under any equity compensation
plans. Under Maryland law, our stockholders generally will not be personally liable for our debts or obligations.



We are currently selling
our shares on a continuous basis at a price of $10.15 per share; however, to the extent that our net asset value per share increases,
we will sell at a price necessary to ensure that shares are not sold at a price per share, after deduction of selling commissions
and dealer manager fees, that is below net asset value per share. Closings are typically semi-monthly. In connection with each
closing on the sale of shares of our common stock pursuant to our prospectus, as amended or supplemented, which relates to our
public offering of common stock on a continuous basis, our board of directors or a committee thereof is required to make the determination
that we are not selling shares of our common stock at a price per share, after deduction of selling commissions and dealer manager
fees, that is below our then current net asset value per share within 48 hours of the time that we price our shares.



A decline in our net
asset value per share to an amount more than 5.0% below our current offering price, net of selling commissions and dealer
manager fees, creates a rebuttable presumption that there has been a material change in the value of our assets such that a reduction
in the offering price per share is warranted. This presumption may only be rebutted if our board of directors, in consultation
with its management, reasonably and in good faith determines that the decline in net asset value per share is the result of a temporary
movement in the credit markets or the value of our assets, rather than a more fundamental shift in the valuation of our portfolio.
In the event that (i) net asset value per share decreases to more than 5.0% below our current net offering price and (ii) our board
of directors believes that such decrease in net asset value per share is the result of a non-temporary movement in the credit markets
or the value of our assets, the board of directors will undertake to establish a new net offering price that is not more than 5.0%
above our net asset value per share.



Set forth below is
a chart describing the classes of our securities outstanding as of December 31, 2013:



|Title of Class                           |  | Amount Authorized |             |  | Amount Issued | 
|---------------------------------------- |  | ----------------- | ----------- |  | ------------- | 
|Common Stock, par value $0.001 per share |  | $                 | 200,000,000 |  |               | 



As of December 31,
2013, gross proceeds from the sale of common stock were $31.6 million, including stock issued pursuant to the distribution reinvestment
plan (“DRIP”) and the purchase made by our Manager for our initial capitalization. As of December 31, 2013, we had
892 record holders of our common stock.



As of December 31,
2012, gross proceeds from the sale of common stock were $9.5 million, including stock issued pursuant to the DRIP and the purchase
made by our Manager for our initial capitalization. As of December 31, 2012, we had 263 record holders of our common stock.



27







Distributions



Subject to our board
of director's 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        | %



(*) 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 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 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.



We have elected to
be treated, beginning with our taxable year ended December 31, 2012, as a RIC under the Code. To obtain and maintain RIC tax treatment,
we must, among other things, distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net
long-term capital losses, if any, to our shareholders. In order to avoid certain excise taxes imposed on RICs, we currently intend
to distribute during each calendar year an amount at least equal to the sum of: (i) 98% of our ordinary income for the calendar
year, (ii) 98.2% of our capital gains in excess of capital losses for the one-year period generally ended on October 31 of the
calendar year (unless an election is made by us to use our taxable year) and (iii) any ordinary income and net capital gains for
preceding years that were not distributed during such years and on which we paid no federal income tax.



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.



Distribution Reinvestment Plan



We have adopted an
“opt-in” distribution reinvestment plan pursuant to which you may elect to have the full amount of your cash distributions
reinvested in additional shares of our common stock. If you wish to receive your distribution in cash, no action will be required
on your part to do so. There will be no selling commissions, dealer manager fees or other sales charges to you if you elect to
participate in the distribution reinvestment plan. We will pay the plan administrator’s fees under the plan. Your distribution
amount will purchase shares of our common stock at 95% of the price that the shares are sold in the offering at the closing immediately
following the distribution date. Shares issued pursuant to our distribution reinvestment plan will have the same voting rights
as our shares of common stock offered.



28







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 |  |                   | 



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:





|                |  | Offering Expenses |     |  | Net Investment Income excluding offering costs |   |       | % Distribution from Net Investment Income excluding offering costs |  |  | % Distributions from Realized Gains excluding offering costs |   |  | % Distributions from Paid In Capital excluding offering costs |   
|--------------- |  | ----------------- | --- |  | ---------------------------------------------- | - | ----- | ------------------------------------------------------------------ |  |  | ------------------------------------------------------------ | - |  | ------------------------------------------------------------- | --
|2013 (Restated) |  | $                 | 322 |  |                                                | $ | 1,120 |                                                                    |  |  | 66                                                           | % |  |                                                               | 23
|2012 (Restated) |  | $                 | 142 |  |                                                | $ | 292   |                                                                    |  |  | 100                                                          | % |  |                                                               | 0 



29







ITEM 6. SELECTED FINANCIAL DATA



The following selected financial data for
the years ended December 31, 2013 and December 31, 2012 and for the period from August 3, 2011 (date of inception) to December
31, 2011 is derived from our financial statements which have been audited by Burr Pilger Mayer, Inc., our independent registered
public accounting firm as stated in their report. The data should be read in conjunction with our financial statements and related
notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”
included elsewhere in this Annual Report on Form 10-K/A (dollars in thousands except share and per share data):



|                                                                |  | For the YearEndedDecember 31,2013 |        |   | For the YearEndedDecember 31,2012 |   |       | For the PeriodfromAugust 3, 2011(Date ofInception) toDecember 31, 2011 | 
|--------------------------------------------------------------- |  | --------------------------------- | ------ | - | --------------------------------- | - | ----- | ---------------------------------------------------------------------- | 
|                                                                |  | (Restated)                        |        |   | (Restated)                        |   |       | (Restated)                                                             | 
|Statement of operations data:                                   |  |                                   |        |   |                                   |   |       |                                                                        | 
|Total investment income                                         |  | $                                 | 1,659  |   |                                   | $ | 146   |                                                                        | 
|Operating expenses                                              |  |                                   |        |   |                                   |   |       |                                                                        | 
|Total expenses                                                  |  |                                   | 1,637  |   |                                   |   | 520   |                                                                        | 
|Less: Expense waivers and reimbursements                        |  |                                   | (776   | ) |                                   |   | (524  | )                                                                      | 
|Net expenses (income)                                           |  |                                   | 861    |   |                                   |   | (4    | )                                                                      | 
|Net investment income (loss)                                    |  |                                   | 798    |   |                                   |   | 150   |                                                                        | 
|Realized and unrealized gain (loss), net                        |  |                                   | (101   | ) |                                   |   | (119  | )                                                                      | 
|Net increase (decrease) in net assets resulting from operations |  | $                                 | 697    |   |                                   | $ | 31    |                                                                        | 
|Per share data - basic and diluted:                             |  |                                   |        |   |                                   |   |       |                                                                        | 
|Net investment income (loss)                                    |  | $                                 | 0.37   |   |                                   | $ | 0.61  |                                                                        | 
|Net realized and unrealized gain (loss) on investments          |  | $                                 | (0.05  | ) |                                   | $ | (0.48 | )                                                                      | 
|Net increase (decrease) in net assets resulting from operations |  | $                                 | 0.32   |   |                                   | $ | 0.13  |                                                                        | 
|Distributions declared                                          |  | $                                 | (0.79  | ) |                                   | $ | (1.02 | )                                                                      | 
|Balance sheet data:                                             |  |                                   |        |   |                                   |   |       |                                                                        | 
|Investments at fair value                                       |  | $                                 | 23,154 |   |                                   | $ | 5,823 |                                                                        | 
|Investments in money market funds - at fair value               |  | $                                 | 1,644  |   |                                   | $ | 1,304 |                                                                        | 
|Total assets                                                    |  | $                                 | 27,764 |   |                                   | $ | 8,548 |                                                                        | 
|Total liabilities                                               |  | $                                 | 340    |   |                                   | $ | 212   |                                                                        | 
|Total net assets                                                |  | $                                 | 27,424 |   |                                   | $ | 8,336 |                                                                        | 
|Other data:                                                     |  |                                   |        |   |                                   |   |       |                                                                        | 
|Total return                                                    |  |                                   | 7.72   | % |                                   |   | 10.98 | %                                                                      | 
|Number of portfolio company investments at period end           |  |                                   | 39     |   |                                   |   | 22    |                                                                        | 
|Total portfolio investments for the period                      |  | $                                 | 27,685 |   |                                   | $ | 7,166 |                                                                        | 
|Investment sales and prepayments for the period                 |  | $                                 | 10,314 |   |                                   | $ | 1,250 |                                                                        | 



30







ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION



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.



Overview



We invest in discounted
corporate debt and equity-linked debt securities of public and private companies whose securities trade on the secondary loan market
for institutional investors and provide distributions to investors. At the same time, we actively work with the target company’s
management to restructure the underlying securities and improve the liquidity position of the target company’s balance sheet.
We employ a proprietary “Co-Optivist TM ” approach (“cooperative activism”, Co-Optivist TM
is a registered trademark of VII Peaks Capital, LLC, 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.



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 stockholders.



We make investments
in target companies that meet our investment criteria. The size of an individual investment will vary based on numerous factors,
including the amount of funds raised in our offering. However, assuming we raise the maximum offering amount of $750.0 million,
we expect to hold at least 50 investments, and we anticipate that the minimum investment size will be approximately $0.25 million.
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 Investment. We invest in debt and equity-linked debt of target companies with a minimum enterprise
value of $200.0 million and whose debt and equity-linked debt is actively traded in the secondary loan market. We expect our portfolio
to be 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 companies. To the extent we have distributable income available we anticipate declaring distributions with a semi-monthly
record and payment date basis. We declared and paid distributions beginning in August 2012 at $0.03063 per share each (an annualized
rate of 7.35% based on our initial public offering price of $10.00 per share) to stockholders. On December 27, 2012, for shareholders
of record on December 27, 2012, and a payable date of January 17, 2013, the board of directors authorized a special distribution
of $0.07664 per share, together with the routine distribution of $0.03063 per share for a total one time annualized return of 8.11%.



Please see Part II, Item 8. “Financial
Statements and Supplementary Data” for a detailed description of Distributions in the Notes to Financial Statements.



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 Mr. Shea, 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.



31







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



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



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



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



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 $1.7 million for the fiscal year ended December 31, 2013, as compared to $0.1 million for the fiscal year ended
2012. The increase is due to a larger note portfolio earning interest in 2013 as compared to 2012. At December 31, 2013, the weighted
average coupon yield was 10.7%, as compared to 9.8% as of December 31, 2012.



32







Expense Reimbursement



We entered into an
expense reimbursement agreement with our 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. The expense reimbursement
agreement allowed the prior manage and us to offset the related receivables and payables to each other resulting in a net receivable,
or payable position.



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.



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. Our total net realized gain from investments was $0.4 million for the fiscal year ended December 31, 2013, as compared
to no realized gain or loss from investments for the fiscal year ended 2012. The 2013 gains were from notes sold or tendered. No
gains in 2012 were due to the first year of operations and a smaller investment portfolio.



Our total net unrealized
depreciation on investments was a $0.5 million for the fiscal year ended December 31, 2013 as compared to $0.1 million in 2012.
The fiscal year 2013 had a larger investment portfolio.



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 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 investor advisory agreement. Our total offering expense was
$0.3 million for the fiscal year ended December 31, 2013, as compared to $0.1 million for the fiscal year ended December 31, 2012.
The year 2013 had a higher amount of investor closings as compared to the year 2012.



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



For the year ended
December 31, 2013, we made $27.7 million of investments in new portfolio companies and had $10.3 million in aggregate amount of
exits and repayments, resulting in net investments of $17.4 million for the period. For the year ended December 31, 2012, we made
$7.2 million of investments in new portfolio companies and had $1.2 million in aggregate amount of exits and repayments, resulting
in net investments of $6.0 million for the period. We had no investments as of December 31, 2011.



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



|                                |  | At December 31, 2013          |      
|------------------------------- |  | ----------------------------- | -----
|                                |  | Percentage of Total Portfolio |      
|Investments – 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



33







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 presents our portfolio
composition based on fair value at December 31, 2012:



|                                |  | At December 31, 2012          |      
|------------------------------- |  | ----------------------------- | -----
|                                |  | Percentage of Total Portfolio |      
|Investments – Money Market      |  |                               | 18.3 
|Senior Secured First Lien Debt  |  |                               | 11.5 
|Senior Secured Second Lien Debt |  |                               | 12.1 
|Senior Unsecured Debt           |  |                               | 43.7 
|Senior Subordinated Debt        |  |                               | 14.4 
|Total                           |  |                               | 100.0



As of December 31, 2012, our investment
portfolio had a yield to maturity of 12.17%.



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



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



The following table shows the portfolio
composition by industry grouping at fair value at December 31, 2012 (dollars in thousands):



|                                          |  | At December 31, 2012      |      
|----------------------------------------- |  | ------------------------- | -----
|                                          |  | Investments at Fair Value |      
|Investments – Money Market                |  | $                         | 1,304
|Healthcare & Pharmaceuticals              |  |                           | 830  
|High Tech Industries                      |  |                           | 771  
|Beverage, Food & Tobacco                  |  |                           | 769  
|Telecommunications                        |  |                           | 764  
|Retail                                    |  |                           | 564  
|Services: Consumer                        |  |                           | 541  
|Consumer Goods: Non-durable               |  |                           | 415  
|Consumer Goods: Durable                   |  |                           | 401  
|Services: Business                        |  |                           | 365  
|Banking, Finance, Insurance & Real Estate |  |                           | 358  
|Environmental Industries                  |  |                           | 45   
|Total                                     |  | $                         | 7,127



34







Our fair value of total investments was
$24.8 million for the fiscal year ended December 31, 2013 as compared to $7.1 million for the fiscal year ended December 31, 2012.
The portfolio increase in 2013 is mainly due to invested proceeds from continuous investor closings in 2013. The additional proceeds
from investor closings throughout 2013 also led to a more diverse portfolio by industry, as compared to 2012.



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
years ended December 31, 2013 and 2012 and for the period from August 3, 2011 (date of inception) to December 31, 2011 are as follows
(dollars in thousands):



|                                                                |  | For the YearEndedDecember 31,2013 |       |   | For the YearEndedDecember 31,2012 |   |      | For the Periodfrom August 3,2011 (Date ofInception) toDecember 31,2011 | 
|--------------------------------------------------------------- |  | --------------------------------- | ----- | - | --------------------------------- | - | ---- | ---------------------------------------------------------------------- | 
|                                                                |  | (Restated)                        |       |   | (Restated)                        |   |      | (Restated)                                                             | 
|Total investment income                                         |  | $                                 | 1,659 |   |                                   | $ | 146  |                                                                        | 
|Total expenses (income), net                                    |  |                                   | 861   |   |                                   |   | (4   | )                                                                      | 
|Net investment income (loss)                                    |  |                                   | 798   |   |                                   |   | 150  |                                                                        | 
|Net realized gains                                              |  |                                   | 395   |   |                                   |   | -    |                                                                        | 
|Net unrealized depreciation                                     |  |                                   | (496  | ) |                                   |   | (119 | )                                                                      | 
|Net increase (decrease) in net assets resulting from operations |  | $                                 | 697   |   |                                   | $ | 31   |                                                                        | 



Revenues



We generated investment income of $1.7
million for the fiscal year ended December 31, 2013, as compared to $0.1 million for the year ended December 31, 2012, 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 December 31, 2013 note portfolio was
significantly higher than the December 31, 2012 balance.





Expenses



Our total operating expenses were $1.6 million
for the fiscal year ended December 31, 2013, as compared to $0.5 million for the fiscal year ended December 31, 2012. Our operating
expenses were offset by an expense reimbursement from our prior manager of $0.8 million in 2013 and $0.5 million in 2012. Our operating
expenses include professional services of $0.3 million in 2013, as compared to $0.1 million in 2012. Professional Services include
legal and audit services. The increase in 2013 is due to legal fees for the prospectus update and a full year of service provider
support in 2013 as compared to 2012. Our operating expenses also include base management fees attributed to our Manager and the
prior manager of $0.4 million in 2013, as compared to $0.06 million in 2012. The management fees increase in 2013 is due to higher
assets under management as compared to 2012. General and administrative expenses include the transfer agent service, printing and
mailing, and other service providers of compliance, custody and fund administration. The year 2013 is higher than 2012 due to the
portfolio growth and a full year of operations in 2013 as compared to 2012. Our Manager is eligible to receive incentive fees based
on performance. We did not pay or accrue any incentive fees in either 2013 or 2012. We generally expect our operating expenses
related to our ongoing operations to increase because of the anticipated growth in the size of our asset base, although the increase
should be slower than the growth in our assets.



The composition of our operating expenses
for the years ended December 31, 2013 and 2012 and for the period from August 3, 2011 (date of inception) to December 31, 2011
was as follows (dollars in thousands):



|                                                                           |  | For the YearEndedDecember 31,2013 |       |   | For the YearEndedDecember 31,2012 |   |      | For the Periodfrom August 3,2011 (Date ofInception) toDecember 31,2011 | 
|-------------------------------------------------------------------------- |  | --------------------------------- | ----- | - | --------------------------------- | - | ---- | ---------------------------------------------------------------------- | 
|                                                                           |  | (Restated)                        |       |   | (Restated)                        |   |      | (Restated)                                                             | 
|Professional fees                                                          |  | $                                 | 334   |   |                                   | $ | 119  |                                                                        | 
|Director fees                                                              |  |                                   | 42    |   |                                   |   | 31   |                                                                        | 
|Insurance                                                                  |  |                                   | 83    |   |                                   |   | 49   |                                                                        | 
|Management fees                                                            |  |                                   | 429   |   |                                   |   | 61   |                                                                        | 
|General and administrative expenses                                        |  |                                   | 427   |   |                                   |   | 118  |                                                                        | 
|Organizational and offering expense                                        |  |                                   | 322   |   |                                   |   | 142  |                                                                        | 
|Operating expenses before expense waivers and reimbursements               |  |                                   | 1,637 |   |                                   |   | 520  |                                                                        | 
|Expense reimbursement                                                      |  |                                   | (776  | ) |                                   |   | (524 | )                                                                      | 
|Total operating expenses (income) net of expense waivers and reimbursement |  | $                                 | 861   |   |                                   | $ | (4   | )                                                                      | 



35







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. The expense reimbursement agreement allowed
the prior manager and us to offset the related receivables from and payables to each other resulting in a net receivable, or payable
position. Our prior manager was obligated to reimburse us for $0.8 million in 2013 and $0.5 million in 2012.



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 $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.



Net Investment Income



Our net investment
income totaled $0.8 million and $0.2 million for the periods ended December 31, 2013 and 2012, respectively. Of our net investment
income in each period, $0.8 million and $0.5 million for the periods ending December 31, 2013 and 2012, 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 fiscal years ended December 31, 2013, and 2012, total investment income was $1.7 million and $0.1 million,
respectively. The 2013 increase is due to a higher average balance in the investment portfolio in 2013. For the fiscal year ended
December 31, 2013, total expenses before expense waivers and reimbursements was $1.6 million and $0.5 million for the fiscal year
ended December 31, 2012. Drivers of the higher expenses in 2013 include larger management fees due to more assets under management
and professional services increase due to legal expenses for the prospectus update and service providers in for a full year as
compared to 2012.



Net Realized Gains or Losses from Investments



For the years ended
December 31, 2013 and 2012, we had $10.3 million and $1.2 million of principal repayments, resulting in $0.4 million and $233 of
realized gains, respectively.



Net Change in Unrealized Appreciation or Depreciation
on Investments



For the years ended
December 31, 2013 and 2012, we had $0.5 million and $0.1 million of unrealized depreciation, respectively.



Changes in Net Assets from Operations



For the years ended
December 31, 2013 and 2012, we recorded a net increase in net assets resulting from operations of $0.7 million and $0.03 million,
respectively. Based on 2,150,019 and 246,231 weighted average common shares outstanding for the years ended December 31, 2013 and
2012, respectively, our per share net increase and decrease in net assets resulting from operations was $0.32 and $0.13, respectively.
For the period from August 3, 2011 (date of inception) to December 31, 2011, we held no investments.



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 on such date. As of December 31, 2013, we issued 3.2 million shares of common stock
for gross proceeds of $31.6 million. 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.



36







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 December
31, 2013, we had $1.6 million invested in money market investments pending investment in debt instruments. As of December 31, 2012,
we had $1.3 million invested in money market investments pending investment in debt instruments.



For the year ended
December 31, 2013, we experienced a net increase in money market investments of $0.3 million. For the year ended December 31, 2013,
approximately $18.4 million was generated from our financing activities, which primarily consisted of $19.4 million in net offering
proceeds received, offset by $1.0 million in distributions. We used approximately $18.4 million of cash in our operating activities
primarily as the result of the purchase of new portfolio debt investments of $27.7 million, offset by the receipt of proceeds from
the sale of, repayment of and principal payments on portfolio debt investments of $10.3 million. Cash used in operating activities
was also affected by increases in receivables for interest and due from related party.



For the year
ended December 31, 2012, we experienced a net increase in money market investments of $1.1 million. For the year ended
December 31, 2012, approximately $7.5 million was generated from our financing activities, which primarily consisted of $7.6
million in net offering proceeds received, offset by $0.1 million in distributions. We used approximately $7.5 million of
cash in our operating activities primarily as the result of the purchase of new portfolio debt investments of $7.2 million,
offset by the receipt of proceeds from the sale of, repayment of and principal payments on portfolio debt investments of $1.3
million. Cash used in operating activities was also affected by increases in receivables for interest and due from related
party.



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.



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        | %



(*) 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.



37







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



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



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



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



Distribution Reinvestment Plan



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



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





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



Related-Party Transactions and Agreements



We have entered into
agreements with the Manager, whereby we pay it certain fees and reimbursements. These include payments to our Manager for reimbursement
of organization and offering costs, as well as, 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.
See Note 5 to the financial statements included elsewhere in this annual report on Form 10-K/A for additional information regarding
such contractual obligations.



38







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 Note 5 to the financial statements included elsewhere in this annual report on Form
10-K/A 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.



Contractual Obligations



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.



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 7A. 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. During the periods covered by this report, we did not engage in interest rate hedging activities. We
would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and
thus we are not exposed to foreign currency fluctuations.



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 prime interest rates up or down from their December 31, 2013 levels, would increase or decrease our net income by $0.2
million annually. The effect of a 100 basis point increase or decrease in prime interest rates from their December 31, 2013 levels
would result in an increase or decrease in net asset value of $0.2 million or 0.92%.



39







ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Index to Financial Statements



|                                                                                                                                                                   | Page
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----
|                                                                                                                                                                   |     
|Report of Independent Registered Public Accounting Firm                                                                                                            | F-1 
|Statements of Assets and Liabilities as of December 31, 2013 and 2012                                                                                              | F-2 
|Statements of Operations for the Years Ended December 31, 2013 and 2012 and for the Period from August 3, 2011 (Date of Inception) to December 31, 2011            | F-3 
|Statements of Changes in Net Assets for the Years Ended December 31, 2013 and 2012 and for the Period from August 3, 2011 (Date of Inception) to December 31, 2011 | F-4 
|Statements of Cash Flows for the Years Ended December 31, 2013 and 2012 and for the Period from August 3, 2011 (Date of Inception) to December 31, 2011            | F-5 
|Schedule of Investments as of December 31, 2013 and 2012                                                                                                           | F-6 
|Notes to Financial Statements                                                                                                                                      | F-8 



40







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

VII Peaks Co-Optivist Income BDC II, Inc.



We have audited the
accompanying statements of assets and liabilities of VII Peaks Co-Optivist Income BDC II, Inc. (the Fund) as of December 31, 2013
and 2012, including the schedules of investments as of December 31, 2013 and 2012, and the related statements of operations, changes
in net assets and cash flows for the years ended December 31, 2013 and 2012 and for the period from August 3, 2011 (date of inception)
to December 31, 2011. These financial statements are the responsibility of the Fund’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.



We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2013, by correspondence with the custodian. We believe that our audits provide a reasonable
basis for our opinion.



As discussed in Note
3 to the financial statements, the Fund has restated its 2013 financial statements to correct errors related to its related party
offering costs.



In our opinion, the
financial statements referred to above present fairly, in all material respects, the financial position of VII Peaks Co-Optivist
Income BDC II, Inc. as of December 31, 2013 and 2012, and the results of its operations, changes in its net assets and its cash
flows for the years ended December 31, 2013 and 2012 and for the period from August 3, 2011 (date of inception) to December 31,
2011, in conformity with accounting principles generally accepted in the United States of America.





/s/ Burr Pilger Mayer, Inc.



San Francisco, California

March 11, 2014, except for the effects of the restatement discussed
in Note 3 and as to Note 11 to the financial statements, as to which the date is July 16, 2015



F-1







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except share and per share
data)



|                                                                                                                                        |  | As of            |       
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------
|                                                                                                                                        |  | December 31,2013 |       
|                                                                                                                                        |  | (Restated)       |       
|ASSETS                                                                                                                                  |  |                  |       
|                                                                                                                                        |  |                  |       
|Investments, at fair value (amortized cost of $23,769 and $5,942, respectively)                                                         |  | $                | 23,154
|Investments, money market at fair value (cost of $1,644 and $1,304, respectively)                                                       |  |                  | 1,644 
|Total investments, at fair value                                                                                                        |  | $                | 24,798
|Interest receivable                                                                                                                     |  |                  | 579   
|Prepaid expenses                                                                                                                        |  |                  | 8     
|Due from related party                                                                                                                  |  |                  | 1,405 
|Receivable for common stock purchased                                                                                                   |  |                  | 974   
|Total assets                                                                                                                            |  | $                | 27,764
|                                                                                                                                        |  |                  |       
|LIABILITIES                                                                                                                             |  |                  |       
|Payable for unsettled trades                                                                                                            |  | $                | 104   
|Management and incentive fees payable                                                                                                   |  |                  | 8     
|Accounts payable and accrued liabilities                                                                                                |  |                  | 129   
|Stockholder distributions payable                                                                                                       |  |                  | 99    
|Total liabilities                                                                                                                       |  | $                | 340   
|                                                                                                                                        |  |                  |       
|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; 3,151,376
    and 950,733 shares issued and outstanding, respectively |  |                  | 3     
|Paid-in capital in excess of par value                                                                                                  |  |                  | 28,645
|Accumulated distribution in excess of net investment income                                                                             |  |                  | (609  
|Net unrealized depreciation on investments                                                                                              |  |                  | (615  
|Total net assets                                                                                                                        |  |                  | 27,424
|Total liabilities and net assets                                                                                                        |  | $                | 27,764
|                                                                                                                                        |  |                  |       
|Net asset value per share                                                                                                               |  | $                | 8.70  



| | (a) | The Fund filed Amendment #1 (“the Amendment”) to its Annual Report on Form 10-K for the year ended December 31,
2012, filed with the Securities and Exchange Commission on July 30, 2013 for the purpose of restating its financial statements
to comply with the investment advisory agreement between the Fund and the Fund’s investment manager.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



F-2







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



STATEMENTS OF OPERATIONS

(in thousands, except share and per share
data)



|                                                                  |  | For the YearEndedDecember 31,
 2013 |           |   | For the YearEndedDecember 31, 
2012 |   |         | For the PeriodfromAugust 3, 2011(Date ofInception) toDecember 31, 2011 | 
|----------------------------------------------------------------- |  | ----------------------------------- | --------- | - | ----------------------------------- | - | ------- | ---------------------------------------------------------------------- | 
|                                                                  |  | (Restated)                          |           |   | (Restated)(a)                       |   |         | (Restated)(a)                                                          | 
|Investment income:                                                |  |                                     |           |   |                                     |   |         |                                                                        | 
|Interest from investments                                         |  | $                                   | 1,657     |   |                                     | $ | 146     |                                                                        | 
|Interest from cash and cash equivalents                           |  |                                     | 1         |   |                                     |   | -       |                                                                        | 
|Total interest income                                             |  |                                     | 1,658     |   |                                     |   | 146     |                                                                        | 
|Other income                                                      |  |                                     | 1         |   |                                     |   | -       |                                                                        | 
|Total investment income                                           |  | $                                   | 1,659     |   |                                     | $ | 146     |                                                                        | 
|                                                                  |  |                                     |           |   |                                     |   |         |                                                                        | 
|Operating expenses:                                               |  |                                     |           |   |                                     |   |         |                                                                        | 
|Professional fees                                                 |  |                                     | 334       |   |                                     |   | 119     |                                                                        | 
|Directors fees                                                    |  |                                     | 42        |   |                                     |   | 31      |                                                                        | 
|Insurance                                                         |  |                                     | 83        |   |                                     |   | 49      |                                                                        | 
|Management fees                                                   |  |                                     | 429       |   |                                     |   | 61      |                                                                        | 
|General and administrative                                        |  |                                     | 427       |   |                                     |   | 118     |                                                                        | 
|Organizational and offering expense                               |  |                                     | 322       |   |                                     |   | 142     |                                                                        | 
|Expenses before expense waivers and reimbursements                |  |                                     | 1,637     |   |                                     |   | 520     |                                                                        | 
|Expense reimbursement                                             |  |                                     | (776      | ) |                                     |   | (524    | )                                                                      | 
|Total expenses (income) net of expense waivers and reimbursements |  |                                     | 861       |   |                                     |   | (4      | )                                                                      | 
|                                                                  |  |                                     |           |   |                                     |   |         |                                                                        | 
|Net investment income (loss)                                      |  |                                     | 798       |   |                                     |   | 150     |                                                                        | 
|                                                                  |  |                                     |           |   |                                     |   |         |                                                                        | 
|Realized and unrealized gain (loss) on investments:               |  |                                     |           |   |                                     |   |         |                                                                        | 
|Net realized gain from investments                                |  |                                     | 395       |   |                                     |   | -       |                                                                        | 
|Net unrealized depreciation on investments                        |  |                                     | (496      | ) |                                     |   | (119    | )                                                                      | 
|Net realized and unrealized loss on investments                   |  |                                     | (101      | ) |                                     |   | (119    | )                                                                      | 
|                                                                  |  |                                     |           |   |                                     |   |         |                                                                        | 
|Net increase (decrease) in net assets resulting from operations   |  | $                                   | 697       |   |                                     | $ | 31      |                                                                        | 
|                                                                  |  |                                     |           |   |                                     |   |         |                                                                        | 
|Per share information - basic and diluted:                        |  |                                     |           |   |                                     |   |         |                                                                        | 
|Net investment income (loss)                                      |  | $                                   | 0.37      |   |                                     | $ | 0.61    |                                                                        | 
|Net increase (decrease) in net assets resulting from operations   |  | $                                   | 0.32      |   |                                     | $ | 0.13    |                                                                        | 
|Weighted average common shares outstanding                        |  |                                     | 2,150,019 |   |                                     |   | 246,231 |                                                                        | 



| | (a) | The Fund filed Amendment #1 (“the Amendment”) to its Annual Report on Form 10-K for the year ended December 31,
2012, filed with the Securities and Exchange Commission on July 30, 2013 for the purpose of restating its financial statements
to comply with the investment advisory agreement between the Fund and the Fund’s investment manager.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



F-3







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except share and per share
data)



|                                                            |  | For the YearEndedDecember 31,2013 |           |   | For the YearEndedDecember 31,2012 |   |         | For
the PeriodfromAugust
3, 2011(Date of Inception)to
December 31, 2011 | 
|----------------------------------------------------------- |  | --------------------------------- | --------- | - | --------------------------------- | - | ------- | ----------------------------------------------------------------------- | 
|                                                            |  | (Restated)                        |           |   | (Restated)(a)                     |   |         | (Restated)(a)                                                           | 
|Operations:                                                 |  |                                   |           |   |                                   |   |         |                                                                         | 
|Net investment income (loss)                                |  | $                                 | 798       |   |                                   | $ | 150     |                                                                         | 
|Net realized gain from investments                          |  |                                   | 395       |   |                                   |   | -       |                                                                         | 
|Net unrealized depreciation on investments                  |  |                                   | (496      | ) |                                   |   | (119    | )                                                                       | 
|Net increase (decrease) in net assets from operations       |  |                                   | 697       |   |                                   |   | 31      |                                                                         | 
|Stockholder distributions:                                  |  |                                   |           |   |                                   |   |         |                                                                         | 
|Distributions from net investment income                    |  |                                   | (798      | ) |                                   |   | (150    | )                                                                       | 
|Distributions from net realized gain on investments         |  |                                   | (395      | ) |                                   |   | -       |                                                                         | 
|Distributions from paid in capital                          |  |                                   | (504      | ) |                                   |   | (100    | )                                                                       | 
|Net decrease in net assets from stockholder distributions   |  |                                   | (1,697    | ) |                                   |   | (250    | )                                                                       | 
|Capital share transactions:                                 |  |                                   |           |   |                                   |   |         |                                                                         | 
|Issuance of common stock, net of issuance costs             |  |                                   | 19,407    |   |                                   |   | 8,358   |                                                                         | 
|Reinvestment of stockholder distributions                   |  |                                   | 681       |   |                                   |   | -       |                                                                         | 
|Net increase in net assets from capital share transactions  |  |                                   | 20,088    |   |                                   |   | 8,358   |                                                                         | 
|                                                            |  |                                   |           |   |                                   |   |         |                                                                         | 
|Total increase in net assets                                |  |                                   | 19,088    |   |                                   |   | 8,139   |                                                                         | 
|Net assets at beginning of period                           |  |                                   | 8,336     |   |                                   |   | 197     |                                                                         | 
|Net assets at end of period                                 |  | $                                 | 27,424    |   |                                   | $ | 8,336   |                                                                         | 
|                                                            |  |                                   |           |   |                                   |   |         |                                                                         | 
|Net asset value per common share                            |  | $                                 | 8.70      |   |                                   | $ | 8.77    |                                                                         | 
|Common shares outstanding at end of period                  |  |                                   | 3,151,376 |   |                                   |   | 950,733 |                                                                         | 
|                                                            |  |                                   |           |   |                                   |   |         |                                                                         | 
|Accumulated distribution in excess of net investment income |  | $                                 | (609      | ) |                                   | $ | (104    | )                                                                       | 



| | (a) | The Fund filed Amendment #1 (“the Amendment”) to its Annual Report on Form 10-K for the year ended December 31,
2012, filed with the Securities and Exchange Commission on July 30, 2013 for the purpose of restating its financial statements
to comply with the investment advisory agreement between the Fund and the Fund’s investment manager.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



F-4







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                                                         |  | For the YearEndedDecember 31,2013 |         |   | For the YearEndedDecember 31,2012 |   |        | For the Period fromAugust 3, 2011(Dateof Inception) toDecember 31, 2011 | 
|------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------- | ------- | - | --------------------------------- | - | ------ | ----------------------------------------------------------------------- | 
|                                                                                                                         |  | (Restated)                        |         |   | (Restated)(a)                     |   |        | (Restated)(a)                                                           | 
|Operating activities:                                                                                                    |  |                                   |         |   |                                   |   |        |                                                                         | 
|Net increase (decrease) in net assets from operations                                                                    |  | $                                 | 697     |   |                                   | $ | 31     |                                                                         | 
|Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities: |  |                                   |         |   |                                   |   |        |                                                                         | 
|Net accretion of discount on investments                                                                                 |  |                                   | (61     | ) |                                   |   | (26    | )                                                                       | 
|Repayments of investments                                                                                                |  |                                   | 10,314  |   |                                   |   | 1,250  |                                                                         | 
|Purchase of investments                                                                                                  |  |                                   | (27,685 | ) |                                   |   | (7,166 | )                                                                       | 
|Repayments of investments - money market                                                                                 |  |                                   | 29,777  |   |                                   |   | -      |                                                                         | 
|Purchase of investments - money market                                                                                   |  |                                   | (30,117 | ) |                                   |   | (1,103 | )                                                                       | 
|Net realized gain from investments                                                                                       |  |                                   | (395    | ) |                                   |   | -      |                                                                         | 
|Net unrealized depreciation on investments                                                                               |  |                                   | 496     |   |                                   |   | 119    |                                                                         | 
|(Increase) decrease in operating assets:                                                                                 |  |                                   |         |   |                                   |   |        |                                                                         | 
|Interest receivable                                                                                                      |  |                                   | (447    | ) |                                   |   | (132   | )                                                                       | 
|Prepaid expenses                                                                                                         |  |                                   | (3      | ) |                                   |   | (5     | )                                                                       | 
|Due from related party                                                                                                   |  |                                   | (850    | ) |                                   |   | (555   | )                                                                       | 
|Receivable for common stock purchased                                                                                    |  |                                   | (245    | ) |                                   |   | -      |                                                                         | 
|Increase (decrease) in operating liabilities:                                                                            |  |                                   |         |   |                                   |   |        |                                                                         | 
|Payable for unsettled trades                                                                                             |  |                                   | 104     |   |                                   |   | -      |                                                                         | 
|Management and incentive fees payable                                                                                    |  |                                   | (13     | ) |                                   |   | 21     |                                                                         | 
|Accounts payable and accrued liabilities                                                                                 |  |                                   | 58      |   |                                   |   | 67     |                                                                         | 
|Net cash used in operating activities                                                                                    |  |                                   | (18,370 | ) |                                   |   | (7,499 | )                                                                       | 
|                                                                                                                         |  |                                   |         |   |                                   |   |        |                                                                         | 
|Financing activities:                                                                                                    |  |                                   |         |   |                                   |   |        |                                                                         | 
|Proceeds from issuance of shares of common stock, net                                                                    |  |                                   | 19,407  |   |                                   |   | 7,581  |                                                                         | 
|Stockholder distributions                                                                                                |  |                                   | (1,037  | ) |                                   |   | (82    | )                                                                       | 
|Net cash provided by financing activities                                                                                |  |                                   | 18,370  |   |                                   |   | 7,499  |                                                                         | 
|                                                                                                                         |  |                                   |         |   |                                   |   |        |                                                                         | 
|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                                                                                                |  | $                                 | 35      |   |                                   | $ | 46     |                                                                         | 
|Cash distribution payable                                                                                                |  | $                                 | 64      |   |                                   | $ | 74     |                                                                         | 
|DRIP distribution paid                                                                                                   |  | $                                 | 680     |   |                                   | $ | 49     |                                                                         | 



| | (a) | The Fund filed Amendment #1 (“the Amendment”) to its Annual Report on Form 10-K for the year ended December 31,
2012, filed with the Securities and Exchange Commission on July 30, 2013 for the purpose of restating its financial statements
to comply with the investment advisory agreement between the Fund and the Fund’s investment manager.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



F-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 issuer has the option of paying interest
in additional notes, in which event the interest rate is 15%.



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



F-6







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



SCHEDULE OF INVESTMENTS

(dollars in thousands)

December 31, 2012



|Portfolio Company (a)                       |  | Industry                                  |  | Investment Coupon
    Rate,MaturityDate |  | Principal |       |  | AmortizedCost |   |       | Fair Value |  |   | %
    ofNet
    Assets | 
|------------------------------------------- |  | ----------------------------------------- |  | --------------------------------------- |  | --------- | ----- |  | ------------- | - | ----- | ---------- |  | - | ---------------------- | 
|                                            |  |                                           |  |                                         |  |           |       |  |               |   |       |            |  |   |                        | 
|Senior Secured First Lien Debt - 10.0% (b)  |  |                                           |  |                                         |  |           |       |  |               |   |       |            |  |   |                        | 
|Apria Healthcare Group, Inc.                |  | Healthcare & Pharmaceuticals              |  | 11.25%, 11/01/2014                      |  | $         | 150   |  |               | $ | 155   |            |  | $ | 155                    | 
|GXS Worldwide, Inc.                         |  | Services: Business                        |  | 9.75%, 6/15/2015                        |  |           | 350   |  |               |   | 364   |            |  |   | 365                    | 
|Rotech Healthcare, Inc.                     |  | Healthcare & Pharmaceuticals              |  | 10.75%, 10/15/2015                      |  |           | 300   |  |               |   | 300   |            |  |   | 299                    | 
|Sub Total Senior Secured First Lien Debt    |  |                                           |  |                                         |  |           | 800   |  |               |   | 819   |            |  |   | 819                    | 
|                                            |  |                                           |  |                                         |  |           |       |  |               |   |       |            |  |   |                        | 
|Senior Secured Second Lien Debt - 10.3% (b) |  |                                           |  |                                         |  |           |       |  |               |   |       |            |  |   |                        | 
|Apria Healthcare Group, Inc.                |  | Healthcare & Pharmaceuticals              |  | 12.38%, 11/1/2014                       |  | $         | 150   |  |               | $ | 149   |            |  | $ | 149                    | 
|Aspect Software, Inc.                       |  | Telecommunications                        |  | 10.63%, 5/15/2017                       |  |           | 400   |  |               |   | 409   |            |  |   | 362                    | 
|Logan's Roadhouse, Inc.                     |  | Beverage, Food & Tobacco                  |  | 10.75%, 10/15/2017                      |  |           | 375   |  |               |   | 353   |            |  |   | 348                    | 
|Sub Total Senior Secured Second Lien Debt   |  |                                           |  |                                         |  |           | 925   |  |               |   | 911   |            |  |   | 859                    | 
|                                            |  |                                           |  |                                         |  |           |       |  |               |   |       |            |  |   |                        | 
|Senior Unsecured Debt - 37.3% (b)           |  |                                           |  |                                         |  |           |       |  |               |   |       |            |  |   |                        | 
|Alliance HealthCare Services, Inc.          |  | Healthcare & Pharmaceuticals              |  | 8.00%, 12/1/2016                        |  | $         | 250   |  |               | $ | 217   |            |  | $ | 227                    | 
|Alliance One International, Inc.            |  | Beverage, Food & Tobacco                  |  | 10.00%, 7/15/2016                       |  |           | 400   |  |               |   | 418   |            |  |   | 421                    | 
|Avaya, Inc.                                 |  | Telecommunications                        |  | 9.75%, 11/01/2015                       |  |           | 225   |  |               |   | 198   |            |  |   | 200                    | 
|Avaya, Inc.                                 |  | Telecommunications                        |  | 10.13%, 11/01/2015                      |  |           | 225   |  |               |   | 198   |            |  |   | 201                    | 
|Bon-ton Department Stores, Inc.             |  | Retail                                    |  | 10.25%, 3/15/2014                       |  |           | 350   |  |               |   | 351   |            |  |   | 347                    | 
|Claire's Stores, Inc.                       |  | Retail                                    |  | 9.63%, 6/01/2015                        |  |           | 235   |  |               |   | 219   |            |  |   | 217                    | 
|Education Management LLC                    |  | Services: Consumer                        |  | 8.75%, 6/1/2014                         |  |           | 400   |  |               |   | 343   |            |  |   | 321                    | 
|First Data Corp.                            |  | Banking, Finance, Insurance & Real Estate |  | 10.55%, 9/24/2015                       |  |           | 175   |  |               |   | 181   |            |  |   | 179                    | 
|First Data Corp.                            |  | Banking, Finance, Insurance & Real Estate |  | 9.88%, 9/24/2015                        |  |           | 175   |  |               |   | 180   |            |  |   | 179                    | 
|Seitel, Inc.                                |  | High Tech Industries                      |  | 9.75%, 2/15/2014                        |  |           | 350   |  |               |   | 355   |            |  |   | 351                    | 
|Suntech Power Holdings Company, Ltd. (c)    |  | Environmental Industries                  |  | 3.00%, 3/15/2013                        |  |           | 100   |  |               |   | 91    |            |  |   | 46                     | 
|Travelport LLC                              |  | Services: Consumer                        |  | 9.88%, 9/01/2014                        |  |           | 250   |  |               |   | 216   |            |  |   | 220                    | 
|YCC Holdings LLC (d)                        |  | Consumer goods: Non-durable               |  | 10.25%, 2/15/2016                       |  |           | 200   |  |               |   | 207   |            |  |   | 206                    | 
|Sub Total Senior Unsecured Debt             |  |                                           |  |                                         |  |           | 3,335 |  |               |   | 3,174 |            |  |   | 3,115                  | 
|                                            |  |                                           |  |                                         |  |           |       |  |               |   |       |            |  |   |                        | 
|Senior Subordinated Debt -12.3% (b)         |  |                                           |  |                                         |  |           |       |  |               |   |       |            |  |   |                        | 
|Sealy Mattress Co.                          |  | Consumer goods: Durable                   |  | 8.25%, 6/15/2014                        |  | $         | 400   |  |               | $ | 404   |            |  | $ | 401                    | 
|Serena Software, Inc.                       |  | High Tech Industries                      |  | 10.38%, 3/15/2016                       |  |           | 410   |  |               |   | 424   |            |  |   | 420                    | 
|The Yankee Candle Company, Inc.             |  | Consumer goods: Non-durable               |  | 9.75%, 2/15/2017                        |  |           | 200   |  |               |   | 210   |            |  |   | 209                    | 
|Sub Total Senior Subordinated Debt          |  |                                           |  |                                         |  |           | 1,010 |  |               |   | 1,038 |            |  |   | 1,030                  | 
|                                            |  |                                           |  |                                         |  |           |       |  |               |   |       |            |  |   |                        | 
|Investments - Money Market -15.6%           |  |                                           |  |                                         |  |           |       |  |               |   |       |            |  |   |                        | 
|Investments - Money Market                  |  |                                           |  |                                         |  | $         | 1,304 |  |               |   | 1,304 |            |  |   | 1,304                  | 
|Sub Total Investments - Money Market        |  |                                           |  |                                         |  |           | 1,304 |  |               |   | 1,304 |            |  |   | 1,304                  | 
|                                            |  |                                           |  |                                         |  |           |       |  |               |   |       |            |  |   |                        | 
|TOTAL INVESTMENTS - 85.5% (b)               |  |                                           |  |                                         |  |           |       |  |               | $ | 7,246 |            |  | $ | 7,127                  | 



(a) All of our investments are issued by eligible U.S. portfolio
companies, as defined in the Investment Company Act of 1940, except for Alliance One International, Inc., Education Management
LLC and Suntech Power Holdings Company, Ltd. Non-qualifying assets represent 11.1% 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 $8,336 as of December
31, 2012.

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

(d) The issuer has the option of paying interest in additional
notes, in which event the interest rate is 11%



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



F-7







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



NOTES TO FINANCIAL STATEMENTS

December 31, 2013



Note 1.  Nature of Operations



VII Peaks Co-Optivist
Income BDC II, Inc. (the “Fund”), a Maryland corporation formed on 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”). The Fund has elected to be treated for federal income
tax purposes as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code of 1986, as
amended (the “Code”). The Fund intends to invest in discounted corporate debt and equity-linked debt securities of
public and private companies whose securities trade on the secondary loan market for institutional investors.



On August 9, 2011,
the Fund filed a registration statement on Form N-2 to sell up to 75,000,000 shares of common stock 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. The Fund was to commence operations when it raised gross offering proceeds of over $1.0 million, all of which
was from persons who were not affiliated with the Fund or VII Peaks-KBR BDC Advisor II, LLC 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 the Fund’s subscribers, pending
release to the Fund. The Fund achieved the minimum offering requirement on July 10, 2012 and commenced operations on such date.
As of December 31, 2013, the Fund issued 3.2 million shares of common stock for gross proceeds of $31.6 million, including $0.7
million of distribution reinvestment plan (“DRIP”).



As of August 20, 2013,
the independent Board Members of the Fund by unanimous vote agreed to terminate the investment advisory agreement between the Fund
and VII Peaks-KBR BDC Advisor II, LLC (the “Prior Manager”) and enter into an investment advisory agreement with VII
Peaks Capital, LLC (the “Manager” or “VII Peaks”) that provides for the same compensation as set forth
in the Fund’s agreement with its prior investment advisor, VII Peaks-KBR BDC Advisor II, LLC.



Note 2.  Summary of Significant
Accounting Policies



Basis of Presentation



The accompanying financial
statements of the Fund have been prepared in conformity with accounting principles generally accepted in the United States of
America ("GAAP") and pursuant to the requirements for reporting on Form 10-K.



During the second quarter of fiscal 2013,
the Fund restated its financial statements for organization and offering expenses in order to comply with the terms of the investment
advisory agreement between the Fund and the Manager. Previously, the Fund expensed all organization costs as they were incurred
by the Manager. Previously, the Fund capitalized all offering expenses incurred prior to the date of commencement of operations
as deferred offering costs and amortized that amount over 12 months from the date of commencement of operations, and expensed all
offering costs incurred by the Manager after the commencement of operations as they were incurred by the Manager. However, because
the Fund is only obligated to reimburse the Manager to the extent of 1.5% of gross offering proceeds, the Fund restated its financial
statements to reflect the expense and obligation to the Manager only as they are payable to the Manager at 1.5% of offering proceeds.



Use of Estimates in the Preparation
of Financial Statements



The preparation of
the accompanying financial statements in conformity with 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 a 1.5% of the gross offering
proceeds. The Fund expenses organizational and offering costs as they become payable under the investment advisory agreement.



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.



F-8







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 GAAP.  The amendments (i) change the approach to the
investment company assessment in ASC Topic 946, clarify the characteristics of an investment company, and provide comprehensive
guidance for assessing whether an entity is an investment company; (ii) require an investment company to measure non-controlling
ownership interests in other investment companies at fair value rather than the equity method of accounting; and (iii) require
the following additional disclosures (a) the fact that the entity is an investment company and is applying the guidance in ASC
Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about
financial support provided or contractually required to be provided by an investment company to any of its investees.  This
guidance is effective for interim an annual reporting periods beginning on or after December 15, 2013. The Fund is currently assessing
the impacts ASU 2013-08 will have on its financial statements.



In
January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting
Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements
originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under
ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement
users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable
and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant
presentation differences between financial statements prepared in accordance with GAAP and those prepared under International Financial
Reporting Standards (“IFRS”). Like ASU 2011-11, the amendments in this update will be effective for fiscal periods
beginning on, or after January 1, 2013. The adoption of ASU 2013-01 did not have a material impact on our financial position or
results of operations.



In December 2011, the
FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which requires entities to disclose information
about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements
on its financial position. The guidance is effective for fiscal years and interim periods beginning on or after January 1, 2013
with retrospective application for all comparative periods presented. The adoption of this guidance, which is related to disclosure
only, did not have a material impact on the Fund’s financial position, results of operations or cash flows.



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



On November 9, 2012,
the Fund entered into an expense reimbursement agreement with the Prior Manager, under which the Prior Manager agreed to reimburse
the Fund for all operating expenses recognized on the quarterly financial statements of the Fund for 2012, retroactive to the date
of formation of the Fund 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. The Fund recognizes a receivable on its books for the
amount due from the Prior Manager under the expense reimbursement agreement, and the Prior Manager recognizes a liability on its
books in the same amount. The expense reimbursement agreement allows the Prior Manager and the Fund to offset the receivable in
favor of the Fund created under the expense reimbursement agreement against the contingent payable owed by the Fund to the Prior
Manager under the investment advisory agreement, resulting in a net receivable or payable position. As of December 31, 2013, the
Prior Manager was indebted to the Fund for $1.4 million of expense reimbursements under the expense reimbursement agreement.



Effective August 20,
2013, the Manager has terminated the expense reimbursement agreement.



F-9







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 year ended
December 31, 2013. The following tables reconcile the amounts as previously reported in the applicable financial statement to the
corresponding restated amounts included in this Annual Report on Form 10-K/A (in thousands, except per share data).



|                                                                |  | December 31, 2013       |       
|--------------------------------------------------------------- |  | ----------------------- | ------
|                                                                |  | As previously
 reported |       
|Statement of Assets and Liabilities                             |  |                         |       
|                                                                |  |                         |       
|Due from related party                                          |  | $                       | 1,354 
|Total assets                                                    |  | $                       | 27,713
|                                                                |  |                         |       
|Accumulated distribution in excess of net investment income     |  | $                       | (660  
|Total net assets                                                |  | $                       | 27,373
|Total liabilities and net assets                                |  | $                       | 27,713
|                                                                |  |                         |       
|Net asset value per share                                       |  | $                       | 8.69  
|                                                                |  |                         |       
|Statement of Operations                                         |  |                         |       
|                                                                |  |                         |       
|Professional fees                                               |  | $                       | 444   
|General and administrative                                      |  | $                       | 317   
|Organizational and offering expense                             |  | $                       | 373   
|Expenses before expense waivers and reimbursements              |  | $                       | 1,688 
|Total expenses (income) net expense waivers and reimbursements  |  | $                       | 912   
|                                                                |  |                         |       
|Net investment income (loss)                                    |  | $                       | 747   
|                                                                |  |                         |       
|Net increase (decrease) in net assets resulting from operations |  | $                       | 646   
|                                                                |  |                         |       
|Per share information - basic and diluted:                      |  |                         |       
|Net investment income (loss)                                    |  | $                       | 0.35  
|Net increase (decrease) in net assets resulting from operations |  | $                       | 0.30  
|                                                                |  |                         |       
|Statement of Changes in Net Assets                              |  |                         |       
|                                                                |  |                         |       
|Net investment income (loss)                                    |  | $                       | 747   
|Net increase (decrease) in net assets resulting from operations |  | $                       | 646   
|                                                                |  |                         |       
|Distributions from net investment income                        |  | $                       | (746  
|Distributions from paid in capital                              |  | $                       | (556  
|                                                                |  |                         |       
|Total increase in net assets                                    |  | $                       | 19,037
|Net assets at end of period                                     |  | $                       | 27,373
|                                                                |  |                         |       
|Accumulated distribution in excess of net investment income     |  | $                       | (660  
|                                                                |  |                         |       
|Statement of Cash Flows                                         |  |                         |       
|                                                                |  |                         |       
|Net increase (decrease) in net assets resulting from operations |  | $                       | 646   
|Due from related party                                          |  | $                       | (799  



F-10







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



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 December 31, 2013 according to the fair value hierarchy (dollars in thousands):



|                                |  | Level 1 |       |  | Level 2 |   |        | Total | 
|------------------------------- |  | ------- | ----- |  | ------- | - | ------ | ----- | 
|Investments – 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 |       | 



F-11







The following table presents fair value
measurements of investments, by major class, as of December 31, 2012 according to the fair value hierarchy (dollars in thousands):



|                                |  | Level 1 |       |  | Level 2 |   |       | Total | 
|------------------------------- |  | ------- | ----- |  | ------- | - | ----- | ----- | 
|Investments – Money Market      |  | $       | 1,304 |  |         | $ | —     |       | 
|Senior Secured First Lien Debt  |  |         | —     |  |         |   | 819   |       | 
|Senior Secured Second Lien Debt |  |         | —     |  |         |   | 859   |       | 
|Senior Unsecured Debt           |  |         | —     |  |         |   | 3,115 |       | 
|Senior Subordinated Debt        |  |         | —     |  |         |   | 1,030 |       | 
|Total                           |  | $       | 1,304 |  |         | $ | 5,823 |       | 



No transfers between levels have occurred
during the periods presented.



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 at Amortized Cost |        |  | Investments at Fair Value |   |        | Fair Value
 Percentage
of Total Portfolio | 
|------------------------------- |  | ----------------------------- | ------ |  | ------------------------- | - | ------ | ----------------------------------------- | 
|Investments – 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 |                                           | 



The composition of the Fund’s investments
as of December 31, 2012, at amortized cost and fair value were as follows (dollars in thousands):



|                                |  | Investments at Amortized Cost |       |  | Investments at Fair Value |   |       | Fair Value
 Percentage of Total Portfolio | 
|------------------------------- |  | ----------------------------- | ----- |  | ------------------------- | - | ----- | ----------------------------------------- | 
|Investments – Money Market      |  | $                             | 1,304 |  |                           | $ | 1,304 |                                           | 
|Senior Secured First Lien Debt  |  |                               | 819   |  |                           |   | 819   |                                           | 
|Senior Secured Second Lien Debt |  |                               | 911   |  |                           |   | 859   |                                           | 
|Senior Unsecured Debt           |  |                               | 3,174 |  |                           |   | 3,115 |                                           | 
|Senior Subordinated Debt        |  |                               | 1,038 |  |                           |   | 1,030 |                                           | 
|Total                           |  | $                             | 7,246 |  |                           | $ | 7,127 |                                           | 



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 (the “Prior
Manager”), which was wholly-owned by VII Peaks-KBR, LLC which was a joint venture between the Manager and KBR Capital Advisors,
LLC (“KBR”).



Investment Advisory Agreement



The Fund has entered
into an investment advisory agreement with the Manager to manage the Fund’s investment activities dated August 20, 2013.
Prior to August 20, 2013, the Fund’s investment activities were managed by the Prior Manager pursuant to an investment advisory
agreement that had substantially the same terms as the Fund’s present agreement with the Manager. 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 years ended December 31, 2013 and 2012, the Fund incurred
$0.4 million and $0.06 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 years ended December 31, 2013 and 2012, the Fund did not incur any incentive
fees related to net investment income or capital gains.



F-12







Under 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. 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.



During the years ended
December 31, 2013 and 2012 and for the period from August 3, 2011 (inception) through December 31, 2011, the Prior Manager incurred
organizational and offering costs of $0.3 million, $1.0 million, and $0.4 million, respectively. Of the total $1.7 million organizational
and offering costs incurred from inception through December 31, 2013, $0.3 million was reimbursed to the Prior Manager during the
year ended December 31, 2013, and an aggregate of $0.5 million had been reimbursed since the Fund commenced operations on July
10, 2012.



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 Prior Manager which the Fund would
otherwise be obligated to reimburse Prior Manager from future sales of the Company’s securities, beginning with any sales
of securities occurring after August 20, 2013.



The Fund expects that
the Manager will continue to incur organizational and offering costs as the Fund’s offering continues, and such additional
organizational and offering costs will increase the amount to which the Manager will be entitled to reimbursement from gross offering
proceeds. The unreimbursed amount will be eligible for reimbursement to the extent the Fund receives subscriptions until March
1, 2014. Organizational and offering expenses paid for by the Manager and reimbursed by the Fund are expensed on the Fund’s
statement of operations as they are payable to the Manager.



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 December 31, 2013 and December 31, 2012, 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 those dates. 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 December 31, 2013, the unreimbursed amount of offering expenses was $0.1 million, which amount is included in “Due from related party” on the Fund’s balance sheet as of that date.



Expense Reimbursement Agreement



On November 9, 2012,
the Fund entered into an expense reimbursement agreement with the Prior Manager, under which the Prior Manager agreed to reimburse
the Fund for all operating expenses, excluding management fees recognized on the quarterly financial statements of the Fund for
2012, retroactive to the date of formation of the Fund 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. The Fund recognizes a receivable
on its books for the amount due from the Prior Manager under the expense reimbursement agreement, and the Prior Manager recognizes
a liability on its books in the same amount. The expense reimbursement agreement allows the Prior Manager and the Fund to offset
the receivable in favor of the Fund created under the expense reimbursement agreement against the contingent payable owed by the
Fund to the Prior Manager under the investment advisory agreement, resulting in a net receivable or payable position. The Fund
terminated the expense reimbursement agreement with the Prior Manager when it terminated the investment advisory agreement with
the Prior Manager on August 20, 2013. While the Fund entered into a new investment advisory agreement with the Manager on August
20, 2013, it did not enter into a new expense reimbursement agreement with the Manager. However, the investment advisory agreement
with the Manager includes the Manager’s undertaking the assume and pay all amounts due by the Prior Manager under the expense
reimbursement agreement, and also that the Fund is obligated to pay the Manager all organization and offering costs previously
borne by the Prior Manager (but only to the extent such costs are reimbursable from gross 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 years ended December 31, 2013 and 2012,
the Fund reimbursed the Manager for $0.1 million and $0.02 million in administration expenses under the administration agreement,
respectively.



F-13







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 December 31, 2013, the Fund has sold 3.2 million shares of common stock for gross
proceeds of $31.6 million including the purchases made by the Manager.



During the year ended December 31, 2013,
the Fund sold 2,200,643 shares of common stock in its offering for net proceeds of $20.1 million, including shares issued under
the distribution reinvestment plan (“DRIP”).



Note 7.  Earnings Per Share



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



The following information sets forth the
computation of the weighted average basic and diluted net increase (decrease) in net assets per share from operations for the years
ended December 31, 2013 and December 31, 2012 and for the period from August 3, 2011 (date of inception) to December 31, 2011 (dollars
in thousands except share and per share amounts):



|                                                                          |  | For the Year Ended December 31 |           |  | For the Year Ended December 31 |   |         | For the Period from August 3, 2011 (Date of Inception) to December 31 | 
|------------------------------------------------------------------------- |  | ------------------------------ | --------- |  | ------------------------------ | - | ------- | --------------------------------------------------------------------- | 
|                                                                          |  | 2013                           |           |  | 2012                           |   |         | 2011                                                                  | 
|                                                                          |  | (Restated)                     |           |  | (Restated)                     |   |         | (Restated)                                                            | 
|Basic and diluted                                                         |  |                                |           |  |                                |   |         |                                                                       | 
|Net increase (decrease) in net assets resulting from operations           |  | $                              | 697       |  |                                | $ | 31      |                                                                       | 
|Weighted average common shares outstanding                                |  |                                | 2,150,019 |  |                                |   | 246,231 |                                                                       | 
|Net increase (decrease) in net assets resulting from operations per share |  | $                              | 0.32      |  |                                | $ | 0.13    |                                                                       | 



The Fund had no potentially
dilutive securities as of December 31, 2013 or December 31, 2012, resulting in the same number of shares for basic and diluted.



Note 8.  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 December 31,
2013, the Fund has accrued $0.1 million in stockholder distributions that were unpaid. All amounts with record date in December
2013 and paid in January 2014 have been accrued in the December 31, 2013 financial statements. As of December 31, 2012, the Fund
has accrued $0.1 million in stockholder distributions that were unpaid. All amounts with record dates in December 2012 and paid
in January 2013 have been accrued in the December 31, 2012 financial statements.



F-14







The following table reflects 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   |      | 
|TOTAL                                 |  |           |         |  |            |  | 948 |             |  |  | 395       |  |  |       | 604 |  |         |  | 1,947 |      | 



* Includes a special distribution of $0.077
per share.



F-15







| | (1) | Includes a special distribution of $0.077 per share.                     
| | --- | -------------------------------------------------------------------------
| | (2) | Does not include $62,000 cash portion financed by VII Peaks Capital, LLC.



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



Percentage of Distributions by Source:



|                                     |  |           |         |  | Net        |  |    | Realized    |  |  |           |  
|------------------------------------ |  | --------- | ------- |  | ---------- |  | -- | ----------- |  |  | --------- | -
|                                     |  |           |         |  | Investment |  |    | Gain From   |  |  | Return of |  
|Period                               |  | Per Share |         |  | Income     |  |    | Investments |  |  | Capital   |  
|July 12, 2012 - September 30, 2012   |  | $         | 0.18375 |  |            |  | 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        | %



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



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 |  |                   | 



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



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



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





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



F-16







Note 9.  Financial Highlights



The following is a schedule of financial
highlights for the years ended December 31, 2013 and 2012:



|                                                                     |  | For the yearendedDecember 31,2013 |           |   | For the yearendedDecember 31,2012 |  
|-------------------------------------------------------------------- |  | --------------------------------- | --------- | - | --------------------------------- | -
|                                                                     |  | (Restated)                        |           |   | (Restated)                        |  
|Per share data:                                                      |  |                                   |           |   |                                   |  
|Net asset value, beginning of period                                 |  | $                                 | 8.77      |   |                                   | $
|                                                                     |  |                                   |           |   |                                   |  
|Results of operations (1)                                            |  |                                   |           |   |                                   |  
|Net investment income                                                |  |                                   | 0.37      |   |                                   |  
|Net realized gain on investments                                     |  |                                   | 0.18      |   |                                   |  
|Net unrealized loss on investments                                   |  |                                   | (0.23     | ) |                                   |  
|Net increase(decrease) in net assets resulting from operations       |  |                                   | 0.32      |   |                                   |  
|                                                                     |  |                                   |           |   |                                   |  
|Stockholder distributions (2)                                        |  |                                   |           |   |                                   |  
|Distributions from net investment income                             |  |                                   | (0.37     | ) |                                   |  
|Distributions from realized gains                                    |  |                                   | (0.18     | ) |                                   |  
|Distributions from capital                                           |  |                                   | (0.24     | ) |                                   |  
|Net decrease in net assets resulting from stockholder distributions  |  |                                   | (0.79     | ) |                                   |  
|                                                                     |  |                                   |           |   |                                   |  
|Capital share transactions                                           |  |                                   |           |   |                                   |  
|Impact from issuance of common stock (3)                             |  |                                   | 0.40      |   |                                   |  
|Net increase in net assets resulting from capital share transactions |  |                                   | 0.40      |   |                                   |  
|Net asset value, end of period                                       |  | $                                 | 8.70      |   |                                   | $
|Shares outstanding at end of period                                  |  |                                   | 3,151,376 |   |                                   |  
|Total return (5)                                                     |  |                                   | 7.72      | % |                                   |  
|Ratio/Supplemental data:                                             |  |                                   |           |   |                                   |  
|Net assets, end of period (in thousands)                             |  | $                                 | 27,424    |   |                                   | $
|Average net assets (in thousands)                                    |  | $                                 | 21,372    |   |                                   | $
|Ratio of net investment income to average net assets (4)             |  |                                   | 3.49      | % |                                   |  
|Ratio of operating expenses to average net assets (4)                |  |                                   | 4.27      | % |                                   |  
|Ratio of expenses reimbursed to average net assets                   |  |                                   | 3.63      | % |                                   |  
|Portfolio turnover ratio (6)                                         |  |                                   | 59.80     | % |                                   |  

_________________________



| | (1) | The per share was derived by using the weighted average shares
        outstanding during the period. Net investment income per share excluding the expense reimbursements equals ($0.06) for the year
        ended December, 31, 2013. Net investment income per share excluding the expense reimbursements equals ($1.52) for the year ended
        December, 31, 2012. There was no expense reimbursement for the period from August 3, 2011 (date of inception) to December 31, 2011.                                                                                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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) | For the year ended December 31, 2013, excluding the expense
        reimbursement, the ratio of net investment income and operating expenses to average net assets is (0.14)% and 7.90%, respectively.
        For the year ended December 31, 2012, excluding the expense reimbursement, the ratio of net investment income and operating expenses
        to average net assets is (12.83)% and 17.84%, respectively. For the period from August 3, 2011 (date of inception) to December
        31, 2011, there was no expense reimbursement.                                                                                                                                                                                                                                        
| | (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. The total
        return based on net asset value for the year ended December 31, 2013, includes the effect of the expense reimbursement which equaled
        3.63%. The total return based on net asset value for the year ended December 31, 2012, includes the effect of the expense reimbursement
        which equaled 6.24%. For the period from August 3, 2011 (date of inception) to December 31, 2011, there was no expense reimbursement.
| | (6) | Portfolio turnover rate is calculated using the year-to-date
sales over the average of the invested assets at fair value. Not annualized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



F-17







Note 10.  Selected Quarterly Data (Unaudited)



The following is the quarterly results of
operations for the year ended December 31, 2013 and 2012. The operating results for any quarter are not necessarily indicative
of results for any future period (dollars in thousands except share and per share amounts):



|                                                                |  | Quarter Ended    |          
|--------------------------------------------------------------- |  | ---------------- | ---------
|                                                                |  | December 31,2013 |          
|                                                                |  | (Restated)       |          
|Investment income                                               |  | $                | 558      
|Operating expenses                                              |  |                  |          
|Total Expenses                                                  |  |                  | 438      
|Less: Waiver of incentive fees                                  |  |                  | -        
|Less: Expense reimbursements                                    |  |                  | (41      
|Net expenses                                                    |  |                  | 397      
|Net investment income (loss)                                    |  |                  | 161      
|Realized and unrealized gain (loss), net                        |  |                  | (253     
|Net increase (decrease) in net assets resulting from operations |  | $                | (92      
|Per share information - basic and diluted                       |  |                  |          
|Net investment income                                           |  | $                | 0.05     
|Net increase (decrease) in net assets resulting from operations |  | $                | (0.03    
|Weighted average shares outstanding                             |  |                  | 2,928,299



|                                                                |  | Quarter Ended    |        
|--------------------------------------------------------------- |  | ---------------- | -------
|                                                                |  | December 31,2012 |        
|                                                                |  | (Restated)       |        
|Investment income                                               |  | $                | 114    
|Operating expenses                                              |  |                  |        
|Total Expenses                                                  |  |                  | 243    
|Less: Waiver of incentive fees                                  |  |                  | -      
|Less: Expense reimbursements                                    |  |                  | (242   
|Net expenses (income)                                           |  |                  | 1      
|Net investment income (loss)                                    |  |                  | 113    
|Realized and unrealized gain (loss), net                        |  |                  | (47    
|Net increase (decrease) in net assets resulting from operations |  | $                | 66     
|Per share information - basic and diluted                       |  |                  |        
|Net investment income (loss)                                    |  | $                | 0.16   
|Net increase (decrease) in net assets resulting from operations |  | $                | 0.10   
|Weighted average shares outstanding                             |  |                  | 691,405



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
January 1, 2014 to July 16, 2015, the Fund issued 3.1 million shares of common stock for gross proceeds of $29.9 million. The proceeds
were substantially invested in new debt securities.



On
February 6, 2014 the Fund gave its voluntary consent to tender the full position of Radio One Inc, 12.5%, 5/24/2016 senior subordinated
notes. The fund chose the cash option for tender. The terms were $1,007.50 per $1,000 par, which is a combination of $977.50 tender
offer and $30 consent payment. On February 13, 2014 the Fund gave its voluntary consent to tender the full position of Accellent,
Inc. 10% Senior Subordinated Notes due 11/01/2017. The Fund chose the tender with early premium option, at the price of $1,080
per $1,000 par. This is a combination of $1,050 tender offer consideration and $30 early tender premium.



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.



F-18







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.



F-19







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



None.



ITEM 9A. 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 Annual Report on Form 10-K/A and determined that the disclosure controls and procedures
are effective.



Management’s
Report on Internal Control Over Financial Reporting



Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rules 13a-15(f) and 15d-15(f),
internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and
Chief Financial Officer, or persons performing similar functions, and effected by the Fund’s board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with GAAP. Based on our management’s evaluation under the framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), management
concluded that our internal controls over financial reporting were effective as of December 31, 2013.



Because of its inherent limitations, a system
of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation
and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.



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 year
ended December 31, 2013 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.



ITEM 9B. OTHER INFORMATION



None.



41







Part III



We will file a definitive Proxy Statement
for our 2014 Annual Meeting of Stockholders with the Securities and Exchange Commission (the “SEC”), pursuant to Regulation
14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted
under General Instruction 6(3) to Form 10-K. Only those sections of our definitive Proxy Statement that specifically address the
items set forth herein are incorporated by reference.



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE



The information required by Item 10 is hereby
incorporated by reference from our definitive Proxy Statement relating to our 2014 Annual Meeting of Stockholders, to be filed
with the SEC within 120 days following the end of our fiscal year.



ITEM 11. EXECUTIVE COMPENSATION



The information required by Item 11 is hereby
incorporated by reference from our definitive Proxy Statement relating to our 2014 Annual Meeting of Stockholders, to be filed
with the SEC within 120 days following the end of our fiscal year.



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



The information required by Item 12 is hereby
incorporated by reference from our definitive Proxy Statement relating to our 2014 Annual Meeting of Stockholders, to be filed
with the SEC within 120 days following the end of our fiscal year.



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



The information required by Item 13 is hereby
incorporated by reference from our definitive Proxy Statement relating to our 2014 Annual Meeting of Stockholders, to be filed
with the SEC within 120 days following the end of our fiscal year.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES



The information required by Item 14 is hereby
incorporated by reference from our definitive Proxy Statement relating to our 2014 Annual Meeting of Stockholders, to be filed
with the SEC within 120 days following the end of our fiscal year.



42







Part IV



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES



| | a. | The following documents are filed as part of this Annual Report:
| | -- | ----------------------------------------------------------------



The following financial statements are set
forth in Item 8:



|                                                                                                                                                                   | Page
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----
|                                                                                                                                                                   |     
|Report of Independent Registered Public Accounting Firm                                                                                                            | F-1 
|Statements of Assets and Liabilities as of December 31, 2013 and 2012                                                                                              | F-2 
|Statements of Operations for the Years Ended December 31, 2013 and 2012 and for the Period from August 3, 2011 (Date of Inception) to December 31, 2011            | F-3 
|Statements of Changes in Net Assets for the Years Ended December 31, 2013 and 2012 and for the Period from August 3, 2011 (Date of Inception) to December 31, 2011 | F-4 
|Statements of Cash Flows for the Years Ended December 31, 2013 and 2012 and for the Period from August 3, 2011 (Date of Inception) to December 31, 2011            | F-5 
|Schedule of Investments as of December 31, 2013 and 2012                                                                                                           | F-6 
|Notes to Financial Statements                                                                                                                                      | F-8 



| | b. | Exhibits:
| | -- | ---------



The following exhibits are included, or
incorporated by reference to exhibits previously filed with the SEC, in this Annual Report on Form 10-K/A for the year ended December
31, 2013 (and are numbered in accordance with Item 601 of Regulation S-K):





|Exhibit
No. |  | Description of Document                                                                                                                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                                                          
|3.1         |  | Articles of Incorporation of VII Peaks-KBR Co-Optivist Income BDC II, Inc. ( Incorporated by reference to Exhibit (a)(1) to Amendment No. 1 to registration statement on Form N-2 filed on December 19, 2011 )                                                           
|3.2         |  | Articles of Amendment and Restatement of VII Peaks-KBR Co-Optivist Income BDC II, Inc. ( Incorporated by reference to Exhibit (a)(2) to Amendment No. 1 to registration statement on Form N-2 filed on March 1, 2012 )                                                   
|3.3         |  | Second Articles of Amendment and Restatement to Articles of Incorporation of VII Peaks-KBR Co-Optivist Income BDC II, Inc. ( Incorporated by reference to Exhibit 3.1 to Form 8-K filed on June 28, 2012 )                                                               
|3.4         |  | Articles of Amendment to Articles of Incorporation of VII Peaks Co-Optivist Income BDC II, Inc. ( Incorporated by reference to Exhibit (a) to Form 8-K filed on September 16, 2013 )                                                                                     
|3.5         |  | Bylaws of the Registrant ( Incorporated by reference to Exhibit (b) to Amendment No. 1 to registration statement on Form N-2 filed on December 19, 2011)                                                                                                                 
|4.1         |  | Form of Subscription Agreement (Incorporated by reference to
    Exhibit (d) to Amendment No. 8 to registration statement on Form N-2 filed on March 30, 2015)                                                                                                           
|4.2         |  | Form of Additional Subscription Agreement (Incorporated by reference
    to Exhibit (d) toAmendment No. 8 to registration statement on Form N-2 filed on March 30, 2015)                                                                                                 
|4.3         |  | Distribution Reinvestment Plan ( Incorporated by reference to Exhibit (e) to Amendment No. 2 to the registration statement on Form N-2 filed on February 15, 2012 )                                                                                                      
|10.1        |  | Investment Advisory Agreement between VII Peaks Co-Optivist Income BDC II, Inc. and VII Peaks Capital, LLC dated August 20, 2013 ( Incorporated by reference to Exhibit (g) to Form 8-K filed on August 23, 2013 )                                                       
|10.2        |  | Dealer Manager Agreement between VII Peaks Co-Optivist Income BDC II, Inc. and Axiom Capital Management, Inc. ( Incorporated by reference to Exhibit (h) to Form 8-K filed on September 27, 2013 )                                                                       
|10.3        |  | Form of Selected Dealer Agreement (Included as Exhibit A to the Dealer Manager Agreement) ( Incorporated by reference to Exhibit (h) to Form 8-K filed on September 27, 2013 )                                                                                           
|10.4        |  | Form of Custody Agreement ( Incorporated by reference to Exhibit (j) to Amendment No. 2 to the registration statement on Form N-2 filed on February 15, 2012 )                                                                                                           
|10.5        |  | Administration Agreement between VII Peaks Co-Optivist Income BDC
    II, Inc. and VII Peaks Capital, LLC dated February 24, 2014 (Incorporated by reference to the Annual Report on Form 10-K
    filed on March 11, 2014)                                              
|10.6        |  | License Agreement between VII Peaks Capital, LLC, VII Peaks-KBR BDC Advisor II, LLC and VII Peaks Co-Optivist Income BDC II, Inc. ( Incorporated by reference to Exhibit (k)(2) to Amendment No. 2 to the registration statement on Form N-2 filed on February 15, 2012 )
|14          |  | Code of Ethics ( Incorporated by reference to Exhibit (r) to Amendment No. 2 to the registration statement on Form N-2 filed on February 15, 2012 )                                                                                                                      
|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.
|- | ---------------



43







Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual 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                                       
|                    |                                          
|                    |                                          



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                                       
|                    |                                          



44