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, 2014



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



For the transition period from
            to



Commission File No. 0-54615










VII Peaks Co-Optivist Income BDC II, Inc.

(Exact name of Registrant as specified in
its charter)














|Maryland                                                       |  | 45-2918121                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of 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/A or any amendment to this Form 10-K/A.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 $9.75 per share as of December 31,
2014, 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 4, 2015 was 5,856,097.



Documents Incorporated by Reference



Portions of the registrant’s definitive Proxy Statement relating
to the registrant’s 2015 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/A 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, 2014
(the “Annual Period”), as originally filed with the Securities and Exchange Commission (the “SEC”) on March
5, 2015 (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 5, 2015, 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-OptivistTM approach in executing our investment strategy;                                                       
| | • | a limited pool of prospective target businesses;                                                                                                          
| | • | our ability to pay distributions on our shares of common stock;                                                                                           
| | • | an economic downturn which could impair our target companies’ abilities to continue to operate, which could lead to the loss of some or all of our assets;
| | • | changes in general economic or business conditions or economic or demographic trends in the United States; and                                            
| | • | the risks, uncertainties and other factors we identify in “Risk Factors” and elsewhere in this annual report.                                             



Our actual results, performance,
prospects or opportunities could differ materially from those expressed in or implied by our forward-looking statements. A description
of some of the risks that could cause our actual results to differ appears under the section “Risk Factors” and elsewhere
in this prospectus. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause
our actual results to differ.



In light of these risks,
uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. These forward-looking statements
are made as of the date of this prospectus. We undertake no obligation to publicly update or revise any forward-looking statements
after the date of this prospectus, whether as a result of new information, future events or otherwise, except as required by law.



Forward-looking statements
are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as
of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. These forward-looking
statements contained in this prospectus do not meet the safe harbor for forward-looking statements pursuant to Section 27A of the
Securities Act. Actual results could differ materially from those anticipated in forward-looking statements and future results
could differ materially from historical performance.











VII PEAKS CO-OPTIVIST INCOME BDC II, INC.

FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 2014



TABLE OF CONTENTS



|                                                                                                                     | Page
|-------------------------------------------------------------------------------------------------------------------- | ----
|PART I                                                                                                               |     
|                                                                                                                     |     
|Item 1. Business                                                                                                     | 4   
|Item 1A. Risk Factors                                                                                                | 17  
|Item 1B. Unresolved Staff Comments                                                                                   | 33  
|Item 2. Properties                                                                                                   | 33  
|Item 3. Legal Proceedings                                                                                            | 33  
|Item 4. Mine Safety Disclosures                                                                                      | 33  
|PART II                                                                                                              |     
|                                                                                                                     |     
|Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 33  
|Item 6. Selected Financial Data                                                                                      | 36  
|Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 37  
|Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                                  | 46  
|Item 8. Financial Statements and Supplementary Data                                                                  | F-1 
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         | 47  
|Item 9A. Controls and Procedures                                                                                     | 47  
|Item 9B. Other Information                                                                                           | 47  
|PART III                                                                                                             |     
|                                                                                                                     |     
|Item 10. Directors, Executive Officers and Corporate Governance                                                      | 48  
|Item 11. Executive Compensation                                                                                      | 48  
|Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters              | 48  
|Item 13. Certain Relationships and Related Transactions, and Director Independence                                   | 48  
|Item 14. Principal Accountant Fees and Services                                                                      | 48  
|PART IV                                                                                                              |     
|                                                                                                                     |     
|Item 15. Exhibits and Financial Statement Schedules                                                                  | 49  
|Signatures                                                                                                           | 50  











Part I



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



|• | “we”, “us”, “our” and the “Fund” refer to VII Peaks Co-OptivistTM 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 under the Investment Company Act of 1940, as amended,
or (the “1940 Act”).



We are managed by VII Peaks
Capital, LLC, or (the “Manager”), which is registered as an investment adviser with the Securities and Exchange Commission,
or (the “SEC”). We have elected to be treated for federal income tax purposes, and as a regulated investment company,
or (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”).



On August 9, 2011, we filed
a registration statement on Form N-2 to sell up to 75,000,000 shares of common stock, $0.001 par value per share, at an initial
public offering price of $10.00 per share. The registration statement was declared effective by the SEC on March 1, 2012. We achieved
the minimum offering requirement on July 10, 2012 and commenced operations on such date. As of December 31, 2014, we issued 5.5
million shares of common stock for gross proceeds of $55.5 million, including $1.9 million under our distribution reinvestment
plan (“DRIP”). As of March 4, 2015, the public offering price of our common stock was $9.75 per share.



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-OptivistTM 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 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. There
can be no assurance that any of these objectives be achieved.



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 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 investments in
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 a 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.



4







Between 2001 and 2008,
corporate debt levels and the supply of leverage offered by banks began a steady increase. Since then, corporate debt has continued
to increase, with the financing sources less available. We believe a significant amount of this debt will be subject to a redemption
event prior to 2021. 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 offering is intended
to provide shareholders with a low minimum investment amount and limited liquidity of their shares of common stock. While our primary
objective is to seek a restructuring of the debt securities we acquire, the success of our investment strategy is not entirely
dependent upon a restructuring event. We seek to acquire debt securities that have an acceptable level of risk while also providing
us with the potential to generate annual returns of 8 – 10%, even if no restructuring of the debt occurs. We also may actively
manage against potential downside risk and volatility by employing various hedging strategies, 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.



Our Manager



Our investment activities
are managed by our Manager who is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, or
(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, and
Stephen F. Shea. 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 meets to discuss new and existing opportunities and developments on current investments. Our investment committee currently
consists of Mr. Chandhoke, our Chief Executive Officer, Mr. Shea, and Bhavin Shah.



Our Affiliates



Our Manager is owned and
managed by Gurpreet (Gurprit) S. Chandhoke, our Chief Executive Officer, and Stephen F. Shea. Founded in April 2009 with principal
offices in Orinda, California, our Manager is an investment management firm that currently serves as a sub-advisor to a number
of separate managed accounts managed by large global financial institutions and other private funds.



Our Manager also manages
VII Peaks Co-Optivist B Fund I, LLC, VII Peaks Co-Optivist R Fund I, LLC and VII Peaks Co-Optivist B Fund II, LLC, private funds
that were formed to conduct private placements of securities and which have substantially similar investment objectives as the
Company. As of December 31, 2014, VII Peaks Co-Optivist B Fund I, LLC, VII Peaks Co-Optivist R Fund I, LLC and VII Peaks Co-Optivist
B Fund II, LLC had aggregate net assets of $8.1 million.



The investment objective,
strategy and fee structure of the private funds are substantially similar to those of VII Peaks Co-Optivist Income BDC II, Inc.
However, the performance of the private funds is not necessarily indicative of our future performance.



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. See below a chart compiled from Bloomberg for USD Bonds rated BBB-C. The chart shows approximately
$2.6 trillion of U.S. based high-yield and institutional loans to mature between 2015 and 2021.

5











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



| | • | 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6







Investment Criteria and Strategy



Secondary Market
Debt Securities



With respect to corporate
debt and equity-linked debt securities that we acquire on the secondary market, 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 leveraged 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | 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.



7







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.







Originated Investment
Positions



We also expect to generate
current income through debt and equity investments that we originate, in addition to investments that we acquire on the secondary
market. A secondary objective is to generate long-term capital appreciation through such investments. We anticipate that during
our offering period we will invest largely in over-the-counter debt securities and customized debt and equity investments in lower
middle market companies. We have adopted the following business strategy to achieve our investment objective:



Focus on middle
market companies with stable cash flow. We believe that there are relatively few finance companies focused on transactions
involving middle market companies, and this is one factor that allows us to negotiate favorable investment terms. Such favorable
terms include higher debt yields and lower leverage levels, more significant covenant protection and greater equity participation
than typical of transactions involving larger companies. We will generally invest in established companies with positive cash flow.
We believe that established companies possess better risk-adjusted return profiles than newer companies that are building management
or in early stages of building a revenue base. These middle market companies represent a significant portion of the U.S. economy
and often require substantial capital investment to grow their businesses.



Employ disciplined
underwriting policies and rigorous portfolio management. We employ an extensive underwriting process that includes a review
of the prospects, competitive position, financial performance and industry dynamics of each potential portfolio company. In addition,
we perform substantial due diligence on potential investments and seek to invest with management teams and/or private equity sponsors
who have proven capabilities in building value. Through our Manager, we offer managerial assistance to our portfolio companies,
giving them access to our investment experience, direct industry expertise and contacts, and allowing us to continually monitor
their progress. As part of the monitoring process, our Manager analyzes monthly and quarterly financial statements versus the previous
periods and year, review financial projections, meet with management, attend board meetings and review all compliance certificates
and covenants.



Focus on long-term
credit performance and principal protection. We will structure our customized loan investments on a conservative basis
with high cash yields, first and/or second lien security interests where possible, cash origination fees, and lower relative leverage
levels. We will seek strong deal protections for our customized debt investments, including default penalties, information rights,
board observation rights, and affirmative, negative and financial covenants, such as lien protection and prohibitions against change
of control. We believe these protections will reduce our risk of capital loss.



Diversification.
We seek to diversify our portfolio broadly among companies in a multitude of different industries and end markets, thereby reducing
the concentration of credit risk in any one company or sector of the economy. We cannot guarantee that we will be successful in
this effort.



8







Investment Selection Process



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.



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.



The diagram below is illustrative
of how we may use our position as an influential debtholder of a target company to restructure its indebtedness.



9













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, or a committee thereof, 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, or a committee thereof, deems worthy and relevant, including independent third-party valuation firms,
if applicable.



Managerial assistance.
 As a business development company, 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, or a committee thereof. 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, or a committee thereof; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | • | our Board of Directors, or a committee thereof, 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10







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.



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 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. USBank is the fund custodian. Through USBank,
the fund uses FT Interactive, a third party valuation firm, to price the notes. The prices are reviewed by the CEO.



Level 3:  Unobservable
inputs for the asset or liability. These investments for the fund are an equity security, a Senior Secured First Lien Note, and
a Senior Secured Second Lien Note. The equity investment has been issued by a Company with terms settled. Its fair value was determined
by its relative amount of the total company enterprise value. The terms of the two notes, however, have not been finalized. The
fair value were derived from the relative amounts of the notes to the total enterprise value as indicated would be the intended
restructing by the issuer.



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 $9.75 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 Securities Exchange Commission, or (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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11







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.



Effective for the February
28, 2013 close and onwards, the Pricing Committee of our Board of Directors increased the share price for new investments from
$10.00 to $10.15 per share due to an increase in our NAV generated from successful refinancings of portfolio companies. 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. The decreases in August and November 2014 were made as a result of reductions in the net asset value
per share of the Company’s common stock, which resulted from three factors: overall declines in the market prices of high
yield debt instruments this year, declines in the market value of specific positions that have defaulted or which the market perceives
will need to restructure, and as a result of distributions made to date in excess of net investment income. The Pricing Committee
of our Board of Directors is required to reassess our offering price when there is a decrease in NAV per share of more than 5%
below our current net offering price, and is required to reduce the offering price where the decrease in the NAV per share is the
result of a non-temporary movement in the credit markets or in the value of our assets. Our board reviewed market data regarding
movements in the credit markets, and the specific circumstances surrounding each of the positions in our portfolio which had experienced
the greatest decline in value, including recent earnings announcements, collateral, priority in the capital structure, and current
indications as to the terms of any restructuring. Based on that analysis, the Board of Directors determined that a reduction in
our gross offering price to $9.75 per share accurately reflected the extent to which the decline was the result of non-temporary
factors in the markets and specific positions



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.



Taxation and Election of 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, 2014, 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 business development company 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
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| | • | diversify our holdings so that at the end of each quarter of the taxable year (i) at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of 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.
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12







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 ended 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.



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;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | 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 and clerical,
bookkeeping and record keeping services at such facilities. Under the administration agreement, our Manager also performs, or oversees
the performance of, our required administrative services, which include, among other things, transfer agency and other service
providers supervision and oversight, preparation and supervision of the financial records for which we are required to maintain
for SEC reporting, stockholder reporting and other Company needs, implementation and supervision of a robust compliance program
and oversight and administration of the quarterly share repurchase program. In addition, our Manager assists us in activities which
include, among other things, performance and supervision of investor relations, Company Board of Director communication and reporting,
determining and publishing our net asset value, overseeing the preparation and filing of our tax returns, the communication, printing
and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and other events such as distributions,
and the performance of administrative and professional services rendered to us by others. Under the administration agreement, we
are obligated to reimburse our Manager for our allocable portion of our Manager’s overhead in performing its obligations
under the administration agreement, including rent, the fees and expenses associated with overseeing and performing the compliance
functions and our allocable portion of the compensation of our chief financial officer, chief compliance officer and any administrative
support staff; however, to date, cost of the chief financial officer, fund administration accounting and the chief compliance officer
are charged directly to the Company.



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 also provides the reimbursement to the Company by the Manager for the Manager’s share of the
Directors and Officers insurance, which is paid by the Company in full. 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.



13







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 business development
company, 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.



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”.



Regulation



The election as a business
development company under the 1940 Act contains prohibitions and restrictions relating to transactions between business development
companies 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 business development company 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 business development
company, 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 business development company, 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.



14







Qualifying Assets



Under the 1940 Act, a business
development company 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
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | • | is controlled by a business development company or a group of companies including a business development company, the business development company actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result thereof, the business development company 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.
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| | • | 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.
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| | • | 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 business development
company 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 business development company 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 business development company purchases such securities
in conjunction with one or more other persons acting together, the business development company 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 business development company, 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.



15









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.



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.



16







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.

Pine Grove Financial
Center

4 Orinda Way,
Bldg. A, Suite 125A

Orinda, CA 94563



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 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.



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. You should carefully read and consider all of the risks described below, together
with all of the other information contained or referred to in this prospectus, before making a decision to invest in our shares.
If any of the following events occur, our financial condition, business and results of operation, may be materially adversely affected.
In that event, you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as
a result of specific factors, including but not limited to the risks described below.



Risks Related to Our Business and Structure



We are a relatively new company and have
a limited operating history, and are subject to the business risks and uncertainties associated with any new business, including
the risk that we will not 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.
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 compete for investments
with other business development companies and investment funds (including private equity funds and mezzanine funds), as well as
traditional financial services companies such as commercial banks and other sources of funding. Moreover, alternative investment
vehicles, such as hedge funds, also make investments in middle market private U.S. companies. As a result, competition for investment
opportunities in private U.S. companies may intensify. Many of our competitors are substantially larger and have considerably greater
financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of capital and access
to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different
risk assessments than we have. These characteristics could allow our competitors to consider a wider variety of investments, establish
more relationships and offer better pricing and more flexible structuring than we are able to do. We may lose investment opportunities
if we do not match our competitors’ pricing, terms and structure. If we are forced to match our competitors’ pricing,
terms and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital
loss. A significant part of our competitive advantage stems from the fact that the market for investments in private U.S. companies
is under served by traditional commercial banks and other financial sources. A significant increase in the number and/or the size
of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors
may have greater experience operating under, or are not subject to, the regulatory restrictions under the 1940 Act that are imposed
on us as a business development company.



17







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.



Price declines in the medium- and large-sized
corporate leveraged loan market may adversely affect the fair value of our portfolio, reducing our net asset value through increased
net unrealized depreciation.



Prior to the onset of
the financial crisis that began in 2007, securitized investment vehicles, hedge funds and other highly leveraged non-bank financial
institutions comprised the majority of the market for purchasing and holding senior and subordinated debt. As the trading price
of the loans underlying these portfolios began to deteriorate beginning in the first quarter of 2007, we believe that many institutions
were forced to raise cash by selling their interests in performing assets in order to satisfy margin requirements or the equivalent
of margin requirements imposed by their lenders and/or, in the case of hedge funds and other investment vehicles, to satisfy widespread
redemption requests. This resulted in a forced deleveraging cycle of price declines, compulsory sales, and further price declines,
with falling underlying credit values, and other constraints resulting from the credit crisis generating further selling pressure.



Conditions in the medium
and large-sized U.S. corporate debt market may experience similar disruption or deterioration in the future, which may cause pricing
levels to similarly decline or be volatile. As a result, our net asset value could decline through an increase in unrealized depreciation
and incurrence of realized losses in connection with the sale of our investments, which could have a material adverse impact on
our business, financial condition and results of operations.



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.



We expect to 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.



Our distributions may exceed our earnings.
Therefore, portions of the distributions that we make may represent a return of capital to you for tax purposes that will lower
your tax basis in your common stock and reduce the amount of funds we have for investment in targeted assets.



Since the Fall of 2013,
our cash distributions to shareholders have been funded partly from capital contributed by shareholders. Prior to the Fall of 2013,
a substantial portion of our distributions were funded by expense reimbursements from our then manager, which are subject to recoupment.
In August 2013, we replaced our then manager with our current Manager, and our current Manager has not entered into an expense
support agreement with us. As a consequence, we do not expect to generate net investment income sufficient to support our projected
dividends unless our current Manager enters into an expense support agreement with us, or until our expense ratio decreases, which
we do not expect will happen until we exceed $100 million in net assets.



Our ability to pay distributions
might be adversely affected by, among other things, the impact of one or more of the risk factors described in this prospectus.
All distributions are and will be paid at the discretion of our Board of Directors and will depend on our earnings, our financial
condition, maintenance of our RIC status, compliance with applicable business development company regulations and such other factors
as our Board of Directors may deem relevant from time to time. We cannot assure you that we will continue to pay distributions
to our shareholders in the future. A return of capital is a return of your investment, rather than a return of earnings or gains
derived from our investment activities. A shareholder will not be subject to immediate taxation on the amount of any distribution
treated as a return of capital to the extent of the shareholder’s basis in its shares; however, the shareholder’s basis
in its shares will be reduced (but not below zero) by the amount of the return of capital, which will result in the shareholder
recognizing additional gain (or a lower loss) when the shares are sold. To the extent that the amount of the return of capital
exceeds the shareholder’s basis in its shares, such excess amount will be treated as gain from the sale of the shareholder’s
shares. Distributions from the proceeds of our public offering or from borrowings also could reduce the amount of capital we ultimately
invest in our portfolio companies.



18







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.



Economic activity in the United States
was impacted by the global financial crisis of 2008 and has yet to fully recover.



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. These conditions may reoccur for a prolonged period of time again or materially
worsen in the future, including as a result of the U.S. government spending cuts that took effect March 1, 2013, the government
shutdown in October 2013, or any further spending cuts or shutdowns.



Economic activity continues to be somewhat subdued
as unemployment rates remain high. As a result, corporate interest rate risk premiums, otherwise known as credit spreads, declined
significantly throughout most of 2009 and 2010. However, credit spreads remain slightly above historical averages, particularly
in the loan market. The improving economic and market conditions that have driven these declines in credit spreads may reverse
themselves if uncertainty returns to the markets. Such a reversal could negatively impact credit spreads as well as our ability
to obtain financing, particularly from the debt markets.





The downgrade of the U.S. credit rating and the economic crisis
in Europe could negatively impact our liquidity, financial condition and earnings.



Although U.S. lawmakers
passed legislation in February of 2014 to raise the federal debt ceiling through March of 2015, and Standard & Poor’s
Ratings Services affirmed its ‘AA+’ long-term sovereign credit rating on the United States and revised the outlook
on the long-term rating from negative to stable in June of 2013, U.S. debt ceiling and budget deficit concerns together with signs
of deteriorating sovereign debt conditions in Europe continue to present the possibility of a credit-rating downgrade, economic
slowdowns, or a recession for the United States. The impact or any further downgrades to the U.S. government’s sovereign
credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions.
These developments, along with any further European sovereign debt issues, could cause interest rates and borrowing costs to rise,
which may negatively impact our ability to access the debt markets on favorable terms. Continued adverse political and economic
conditions could have a material adverse effect on our business, financial condition and results of operations.



A failure or the perceived risk of a failure to raise the
statutory debt limit of the United States could have a material adverse effect on our business, financial condition and results
of operations.



In February of 2014, U.S.
lawmakers passed legislation to raise the federal debt ceiling through March of 2015. However, if legislation increasing the debt
ceiling is not enacted beyond March of 2015 and the debt ceiling is reached, the federal government may stop or delay making payments
on its obligations. A failure by Congress to raise the debt limit to the extent necessary would increase the risk of default by
the United States on its obligations, as well as the risk of other economic dislocations. If the U.S. Government fails to complete
its budget process or to provide for a continuing resolution before the expiration of the current continuing resolution (currently
March 2015), another federal government shutdown may result. Such a failure or the perceived risk of such a failure,
consequently, could have a material adverse effect on the financial markets and economic conditions in the United States and throughout
the world. It could also limit our ability and the ability of our portfolio companies to obtain financing, and it could have a
material adverse effect on the valuation of our portfolio companies. Consequently, the continued uncertainty in the general economic
environment and potential debt ceiling implications, as well in specific economies of several individual geographic markets in
which our portfolio companies operate, could adversely affect our business, financial condition and results of operations.



A substantial portion of our investment
portfolio may be recorded at fair value as determined in good faith by our Board of Directors, or a committee thereof, 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, and a committee thereof. 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, and a committee thereof.



19







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.



Any unrealized losses we experience on
our portfolio may be an indication of future realized losses, which could reduce our income available for distribution.



As a business development
company, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as
determined in good faith by our Board of Directors. Decreases in the market values or fair values of our investments are recorded
as unrealized depreciation. Any unrealized losses in our portfolio could be an indication of a portfolio company’s inability
to meet its repayment obligations to us with respect to the affected investments. This could result in realized losses in the future
and ultimately in reductions of our income available for distribution in future periods. In addition, decreases in the market value
or fair value of our investments will reduce our net asset value.



Our ability to achieve our investment objective depends on
our Manager’s ability to manage and support our investment process. If our Manager were to lose any members of its senior
management team, our ability to achieve our investment objective could be significantly harmed.



We are externally managed
and depend upon the investment expertise, diligence, skill and network of business contacts of our Manager. We also depend, to
a significant extent, on our Manager’s access to the investment professionals and the information and deal flow generated
by these investment professionals in the course of their investment and portfolio management activities. Our Manager will evaluate,
negotiate, structure, close, monitor and service our investments. Our success depends to a significant extent on the continued
service and coordination of our Manager, including its key professionals. The departure of a significant number of our Manager’s
key professionals could have a materially adverse effect on our ability to achieve our investment objective. In addition, we can
offer no assurance that our Manager will remain our investment adviser and sub-adviser or that we will continue to have access
to their investment professionals or their information and deal flow.



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. Our management was 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 are 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.



20







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.



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.



Risks Related to our Manager



Our Manager has limited prior experience
managing a Business Development Company or a RIC.



Our Manager was formed
in 2009, has only managed a business development company since 2012, and has limited prior experience managing a business development
company 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 business development company 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.



21







The 1940 Act and the Code
impose numerous constraints on the operations of business development companies and RICs that do not apply to the other types of
investment vehicles. For example, under the 1940 Act, business development companies 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 business development company or
a RIC or could force us to pay unexpected taxes and penalties, which could be material. Our Manager has no experience managing
a business development company 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, our Manager’s
officers 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 Capital Management, Inc., or (“Axiom”) may also be involved in other ventures, some of which may compete with
us for investment opportunities.



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, including original issue discount, which may arise if we receive warrants in connection with the origination
of a loan or possibly in other circumstances, or contractual payment-in-kind, or (“PIK”), interest, which represents
contractual interest added to the loan balance and due at the end of the loan term. To the extent we do not distribute accrued
PIK interest, the deferral of PIK interest has the simultaneous effects of increasing the assets under management and increasing
the base management fee at a compounding rate, while generating investment income and increasing the incentive fee at a compounding
rate. In addition, the deferral of PIK interest would also increase the loan-to-value ratio at a compounding rate if the issuer’s
assets do not increase in value, and investments with a deferred interest feature, such as PIK interest, may represent a higher
credit risk than loans on which interest must be paid in full in cash on a regular basis.



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 or PIK interest) 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.



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



22







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 business development company’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 business
development company’s pay their manager.



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.



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 business development company.



As a business development
company, 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 business development company, 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 business
development company would reduce our operating flexibility.



If we do not remain a business
development company, 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.



Regulations governing our operation as
a business development company 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 business development company, therefore, we continuously issue
equity at a rate more frequent than our privately owned competitors, which may lead to greater shareholder dilution.



23







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.



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.



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 uncertain of our sources for funding
our future capital needs; if we cannot obtain debt or equity financing on acceptable terms, our ability to acquire investments
and to expand our operations will be adversely affected.



The net proceeds from the
sale of common stock will be used for our investment opportunities, operating expenses and for payment of various fees and expenses
such as base management fees, incentive fees and other expenses. Any working capital reserves we maintain may not be sufficient
for investment purposes, and we may require debt or equity financing to operate. Accordingly, in the event that we develop a need
for additional capital in the future for investments or for any other reason, these sources of funding may not be available to
us. Consequently, if we cannot obtain debt or equity financing on acceptable terms, our ability to acquire investments and to expand
our operations will be adversely affected. As a result, we would be less able to create and maintain a broad portfolio of investments
and achieve our investment objective, which may negatively impact our results of operations and reduce our ability to make distributions
to our shareholders.



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.



24







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.



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.



25







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.



To the extent original issue discount
constitutes a portion of our income, we will be exposed to risks associated with the deferred receipt of cash representing such
income.



Our investments may include
original issue discount instruments. To the extent original issue discount constitutes a portion of our income, we will be exposed
to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of
cash, including the following:



| | • |  | Original issue discount instruments may have unreliable valuations because the accruals require judgments about collectability.
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| | • |  | Original issue discount instruments may create heightened credit risks because the inducement to trade higher rates for the deferral of cash payments typically represents, to some extent, speculation on the part of the borrower.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • |  | For accounting purposes, cash distributions to stockholders representing original issue discount income do not come from paid-in capital, although they may be paid from the offering proceeds. Thus, although a distribution of original issue discount income comes from the cash invested by the stockholders, the 1940 Act does not require that stockholders be given notice of this fact.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • |  | In the case of PIK, “toggle” debt, the PIK election has the simultaneous effects of increasing the assets under management, thus increasing the base management fee, and increasing the investment income, thus increasing the incentive fee.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • |  | Original issue discount creates risk of non-refundable cash payments to the Advisor based on non-cash accruals that may never be realized.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



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.



Risks Relating to Debt Financing



If we borrow funds, the potential for gain or loss on amounts
invested in us is magnified and may increase the risk of investing in us.



Borrowings, also known
as leverage, magnify the potential for gain or loss on invested equity capital. If we use leverage to partially finance our investments,
you will experience increased risks associated with investing in our securities. We may borrow from banks and other lenders, and
may issue debt securities or enter into other types of borrowing arrangements in the future. Our loan agreements may contain financial
and operating covenants that could restrict our business activities. Breach of any of those covenants could cause a default under
those instruments. Such a default, if not cured or waived, could have a material adverse effect on us. If the value of our assets
increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would
have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline
more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable
on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease
in our income would cause our net investment income to decline more sharply than it would have had we not borrowed. Such a decline
could negatively affect our ability to make distributions to our stockholders. Leverage is generally considered a speculative investment
technique. At February 12, 2015, we had not incurred any leverage.



26









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.



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.



27









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 continued 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 1%. 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 has recently halted the quantitative easing program, after
injection of $4.5 trillion over the last five years. The program was introduced to steer the world’s largest economy through
the financial crisis. It aided in keeping interest rates near an all-time low in the U.S. The long term unintended consequences
remain concerning, including excessive risk-taking.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Revenue from our investments may not be guaranteed.



We generate investment
income in the form of interest and fees earned on senior secured loans, senior secured notes, subordinated debt, senior unsecured
debt and collateralized securities in our portfolio. The level of income we receive is directly related to the balance of collectible
income producing investments multiplied by the weighted average yield of our investments. There is no guarantee that the companies
we invest in will pay the coupon interest when due.



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



We are subject to financial
market risks, including changes in interest rates. General interest rate fluctuations may have a substantial negative impact on
our investments and investment opportunities and, accordingly, have a material adverse effect on our ability to achieve our investment
objective and our target rate of return on invested capital. In addition, an increase in interest rates would make it more expensive
to use debt for our financing needs, if any.



Risks Related to Our Continuous Offering and Our Shares



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 and any selected dealers who enter into agreements with Axiom 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.



28









Investors will not know the purchase
price per share at the time they submit their subscription agreements and could pay a premium for their common stock if our Board
of Directors does not decrease the offering price in the event of a decline in our net asset value, or (“NAV”) per
share.



The purchase price at which
you purchase common stock will be determined at each semi-monthly 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 common stock. In the event
of a decrease to our net asset value per share, you could pay a premium of more than 5.0% for your common stock if our Board of
Directors does not decrease the offering price. 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 our 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, our 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. If our Board
of Directors determines that the decline in our net asset value per share is the result of a temporary movement in the credit markets
or the value of our assets, investors will  purchase common stock at an offering price per share, net of selling commissions
and dealer manager fees, which represents a premium to the net asset value per share of greater than 5.0%.



In fiscal 2014, the net
asset value of our common stock decreased to an amount more than 5% below our then current offering price. The declines resulted
from three factors: overall declines in the market prices of high yield debt instruments this year, declines in the market value
of specific positions that have defaulted or which the market perceives will need to restructure, and as a result of distributions
made to date in excess of net investment income. The Pricing Committee of our Board of Directors reviewed market data regarding
movements in the credit markets, and the specific circumstances surrounding each of the positions in our portfolio which had experienced
the greatest decline in value, including recent earnings announcements, collateral, priority in the capital structure, and current
indications as to the terms of any restructuring. Based on that analysis, the Board of Directors determined that a reduction in
our gross offering price to $9.75 per share accurately reflected the extent to which the decline was the result of non-temporary
factors in the markets and specific positions. However, the current offering price of $9.75 is more than 5% greater than the net
asset value per share of our common stock. Therefore, investors in our common stock will experience immediate dilution of their
investments.



If we are unable to raise substantial
funds in our continuous “best efforts” offering, our distributions may continue to constitute a return of capital or
we may have to reduce our distribution rate.



Since we have commenced
operations, we have implemented a policy of declaring semi-monthly distributions at an annual distribution rate of 7.35% per annum
of our offering price. Our distributions 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. 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.



Our continuous offering
is being made on a best efforts basis, whereby Axiom and any selected dealers who enter into agreements with Axiom 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. If we are
unable to increase our net assets to a level sufficient to make our distributions from investment income, we may have to reduce
our distribution rate. If we do not increase our net assets sufficiently, and do not decrease our distribution rate, a substantial
part of our distributions will continue to constitute a return of capital, which will decrease the net asset value per share of
our common stock.



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 provides 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.



29







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.



Our ability to successfully conduct our
continuous offering is dependent, in part, on the ability of Axiom 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 to establish
and maintain a network of licensed securities broker-dealers and other agents to sell our shares. If Axiom 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 our 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.



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



Shareholders do 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. After an investor purchases shares,
our board may elect to sell additional shares in the future, issue equity interests in private offerings, or issue share-based
awards to our independent directors or persons associated with the Advisor. 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, you may also experience
dilution in the book value and fair value of your shares of common stock.



30







Under the 1940 Act, we
generally are prohibited from issuing or selling our common stock at a price below net asset value per share, which may be a disadvantage
as compared with certain public companies. We may, however, sell our common stock, or warrants, options, or rights to acquire our
common stock, at a price below the current net asset value of our common stock if our Board of Directors and independent directors
determine that such sale is in our best interests and the best interests of our stockholders, and our stockholders, including a
majority of those stockholders that are not affiliated with us, approve such sale. In any such case, the price at which our securities
are to be issued and sold may not be less than a price that, in the determination of our Board of Directors, closely approximates
the fair value of such securities (less any distributing commission or discount). If we raise additional funds by issuing common
stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders
at that time will decrease and you will experience dilution.



Under the terms of our charter, our Board
of Directors is authorized to issue shares of preferred stock with rights and privileges superior to common stockholders without
common stockholder approval.



Under the terms of our
charter, our Board of Directors is authorized to issue shares of preferred stock in one or more classes or series without stockholder
approval. The board has discretion to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations
as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series of preferred
stock. Every issuance of preferred stock will be required to comply with the requirements of the 1940 Act. The 1940 Act requires,
among other things, that (1) immediately after issuance and before any distribution is made with respect to our common stock and
before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an
amount equal to 50% of our total assets after deducting the amount of such distribution or purchase price, as the case may be,
and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all
times and to elect a majority of the directors if distributions on such preferred stock are in arrears by two years or more. Certain
matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock.



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.



Investing in our common stock involves
a high degree of risk.



The investments we make
in accordance with our investment objective may result in a higher amount of risk and volatility or loss of principal than alternative
investment options. Our investments in portfolio companies may be highly speculative and aggressive and, therefore, an investment
in our common stock may not be suitable for someone with lower risk tolerance.



The net asset value of our common stock
may fluctuate significantly.



The net asset value and
liquidity, if any, of the market for shares of our common stock may be significantly affected by numerous factors, some of which
are beyond our control and may not be directly related to our operating performance. These factors include:



| | • |  | significant volatility in the market price and trading volume of securities of business development companies or other companies in our sector, which are not necessarily related to the operating performance of the companies;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • |  | changes in regulatory policies or tax guidelines, particularly with respect to RICs or business development companies;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| | • |  | loss of RIC or business development company status;
| | - |  | ---------------------------------------------------



| | • |  | changes in earnings or variations in operating results;
| | - |  | -------------------------------------------------------



| | • |  | changes in the value of our portfolio of investments;
| | - |  | -----------------------------------------------------



31







| | • |  | changes in accounting guidelines governing valuation of our investments;
| | - |  | ------------------------------------------------------------------------



| | • |  | any shortfall in revenue or net income or any increase in losses from levels expected by investors;
| | - |  | ---------------------------------------------------------------------------------------------------



| | • |  | departure of the Manager or certain of its respective key personnel;
| | - |  | --------------------------------------------------------------------



| | • |  | operating performance of companies comparable to us;
| | - |  | ----------------------------------------------------



| | • |  | general economic trends and other external factors; and
| | - |  | -------------------------------------------------------



| | • |  | loss of a major funding source.
| | - |  | -------------------------------



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.



You may have current tax liability on
distributions you elect to reinvest in shares of our common stock but would not receive cash from such distributions to pay such
tax liability.



If you participate in our
distribution reinvestment plan, you will be deemed to have received, and for U.S. federal income tax purposes will be taxed on,
the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. As
a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value
of our common stock received from the distribution.



32







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.



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 Pine Grove Financial
Center, 4 Orinda Way, Bldg A, Suite 125-A, Orinda, CA 94563. 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.



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 $9.75 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. For the year
ended December 31, 2014, we had two such price reductions. 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.



33







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, 2014:



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



As of December 31, 2014,
gross proceeds from the sale of common stock were $55.5 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, 2014, we had
1,525 record holders of our common stock.



As of December 31, 2013,
gross proceeds from the sale of common stock were $31.6 million, including stock issued pursuant to the 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.



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. Based upon our current level of operations, we estimate that about 80% of our distributions will
constitute a return of capital. Our distributions historically have not been based on our investment performance. Prior to
September 2013, our distributions were supported by our Manager in the form of operating expense support payments to us, and
a portion of our distributions constituted a return of capital. Since September 2013, we have not had an expense support
agreement with our Manager and as a result a greater portion of our distributions have constituted a return of capital. A
return of capital generally is a return of your investment rather than a return of earnings or gains derived from our
investment activities constitutes the return of capital previously paid to us for shares of our common stock.



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



|                                     |  |           |         |  | Net        |  |    | Realized    |  |  |           |  
|------------------------------------ |  | --------- | ------- |  | ---------- |  | -- | ----------- |  |  | --------- | -
|                                     |  |           |         |  | Investment |  |    | Gain From   |  |  | Return of |  
|Period                               |  | Per Share |         |  | Income     |  |    | Investments |  |  | Capital   |  
|July 12, 2012 - September 30, 2012   |  | $         | 0.18375 |  |            |  | 64 | %           |  |  | 0         | %
|October 1, 2012 - December 31, 2012* |  |           | 0.26075 |  |            |  | 59 | %           |  |  | 0         | %
|January 1, 2013 - March 31, 2013 *   |  |           | 0.26259 |  |            |  | 67 | %           |  |  | 13        | %
|April 1, 2013 - June 30, 2013        |  |           | 0.18650 |  |            |  | 77 | %           |  |  | 14        | %
|July 1, 2013 - September 30, 2013    |  |           | 0.18650 |  |            |  | 51 | %           |  |  | 10        | %
|October 1, 2013 - December 31, 2013  |  |           | 0.18650 |  |            |  | 13 | %           |  |  | 47        | %
|January 1, 2014 - March 31, 2014     |  |           | 0.18650 |  |            |  | 27 | %           |  |  | 13        | %
|April 1, 2014 - June 30, 2014        |  |           | 0.18650 |  |            |  | 49 | %           |  |  | 0         | %
|July 1, 2014  - September 30, 2014   |  |           | 0.18467 |  |            |  | 17 | %           |  |  | 3         | %
|October 1, 2014 - December 31, 2014  |  |           | 0.18145 |  |            |  | 15 | %           |  |  | 6         | %



(*) 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.



34







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.



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, 2014, 2013 and 2012:





|                                         |  | Year ended        |       |  | Year ended        |  |       | Year ended        | 
|---------------------------------------- |  | ----------------- | ----- |  | ----------------- |  | ----- | ----------------- | 
|Source of Distributions:                 |  | December 31, 2014 |       |  | December 31, 2013 |  |       | December 31, 2012 | 
|                                         |  | (Restated)        |       |  | (Restated)        |  |       | (Restated)        | 
|Distributions from net investment income |  | $                 | 819   |  |                   |  | 26.1  | %                 | 
|Distributions from realized gains        |  |                   | 166   |  |                   |  | 5.3   | %                 | 
|Distributions from paid in capital       |  |                   | 2,153 |  |                   |  | 68.6  | %                 | 
|Total                                    |  | $                 | 3,138 |  |                   |  | 100.0 | %                 | 





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 InvestmentIncomeexcludingoffering costs |   |       | % Distributionfrom NetInvestmentIncome excludingoffering costs |  |  | % Distributionsfrom RealizedGains excludingoffering costs |   |  | % Distributionsfrom Paid InCapital excludingoffering costs |   
|--------------- |  | ----------------- | --- |  | ------------------------------------------- | - | ----- | -------------------------------------------------------------- |  |  | --------------------------------------------------------- | - |  | ---------------------------------------------------------- | --
|2014 (Restated) |  | $                 | 352 |  |                                             | $ | 1,171 |                                                                |  |  | 37                                                        | % |  |                                                            | 5 
|2013 (Restated) |  | $                 | 322 |  |                                             | $ | 1,120 |                                                                |  |  | 66                                                        | % |  |                                                            | 23
|2012 (Restated) |  | $                 | 142 |  |                                             | $ | 292   |                                                                |  |  | 100                                                       | % |  |                                                            | 0 





35







ITEM 6. SELECTED FINANCIAL DATA



The following selected financial data for the
years ended December 31, 2014, 2013 and 2012 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 31,2014 |        |    | For the YearEndedDecember 31,2013 |   |        | For the YearEndedDecember 31,2012 | 
|--------------------------------------------------------------- |  | --------------------------------- | ------ | -- | --------------------------------- | - | ------ | --------------------------------- | 
|                                                                |  | (Restated)                        |        |    | (Restated)                        |   |        | (Restated)                        | 
|Statement of operations data:                                   |  |                                   |        |    |                                   |   |        |                                   | 
|Total investment income                                         |  | $                                 | 3,260  |    |                                   | $ | 1,659  |                                   | 
|Operating expenses                                              |  |                                   |        |    |                                   |   |        |                                   | 
|Total expenses                                                  |  |                                   | 2,441  |    |                                   |   | 1,637  |                                   | 
|Less: Expense waivers and reimbursements                        |  |                                   | -      |    |                                   |   | (776   | )                                 | 
|Net expenses (income)                                           |  |                                   | 2,441  |    |                                   |   | 861    |                                   | 
|Net investment income (loss)                                    |  |                                   | 819    |    |                                   |   | 798    |                                   | 
|Realized and unrealized gain (loss), net                        |  |                                   | (6,093 | )  |                                   |   | (101   | )                                 | 
|Net increase (decrease) in net assets resulting from operations |  | $                                 | (5,274 | )  |                                   | $ | 697    |                                   | 
|Per share data - basic and diluted:                             |  |                                   |        |    |                                   |   |        |                                   | 
|Net investment income (loss)                                    |  | $                                 | 0.19   |    |                                   | $ | 0.37   |                                   | 
|Net realized and unrealized gain (loss) on investments          |  | $                                 | (1.42  | )  |                                   | $ | (0.05  | )                                 | 
|Net increase (decrease) in net assets resulting from operations |  | $                                 | (1.23  | )  |                                   | $ | 0.32   |                                   | 
|Distributions declared                                          |  | $                                 | (0.73  | )  |                                   | $ | (0.79  | )                                 | 
|Balance sheet data:                                             |  |                                   |        |    |                                   |   |        |                                   | 
|Investments at fair value                                       |  | $                                 | 37,428 |    |                                   | $ | 23,154 |                                   | 
|Investments in money market funds – at fair value               |  | $                                 | 3,104  |    |                                   | $ | 1,644  |                                   | 
|Total assets                                                    |  | $                                 | 42,381 |    |                                   | $ | 27,764 |                                   | 
|Total liabilities                                               |  | $                                 | 1,693  |    |                                   | $ | 340    |                                   | 
|Total net assets                                                |  | $                                 | 40,688 |    |                                   | $ | 27,424 |                                   | 
|Other data:                                                     |  |                                   |        |    |                                   |   |        |                                   | 
|Total return                                                    |  |                                   | (8.88  | )% |                                   |   | 7.72   | %                                 | 
|Number of portfolio company investments at period end           |  |                                   | 45     |    |                                   |   | 39     |                                   | 
|Total portfolio investments for the period                      |  | $                                 | 31,308 |    |                                   | $ | 27,685 |                                   | 
|Investment sales and prepayments for the period                 |  | $                                 | 11,765 |    |                                   | $ | 10,314 |                                   | 



36







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



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



Overview



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 cashflow, 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.



Our investment activities
are managed by our Manager. 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 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.



Summary of Significant Accounting Policies



Basis of Presentation



The financial statements
of the Fund included herein were prepared in conformity with accounting principles generally accepted in the United States of America
("U.S. GAAP") for interim financial information and with the instructions to Form 10-K and Article 10 of Regulation S-X.
Accordingly, and include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion
of management, these financial statements include all adjustments, consisting only of normal recurring adjustments and accruals,
necessary for a fair presentation of the results for the period.



Use of Estimates in the Preparation of
Financial Statements



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



Investments - Money Market



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



Organizational and Offering Costs



The Fund is a closed-end
fund with a continuous offering period. Organization costs include, among other things, the cost of organizing us as a Maryland
corporation, including the cost of legal services and other fees pertaining to our organization. Offering expenses include, among
other things, legal fees and other costs pertaining to the preparation of our registration statement in connection with the Fund’s
continuous offering. Under the investment advisory agreement between the Fund and the Manager, our Manager fronts the cost of the
organizational and offering expenses which are reimbursable by the Fund with up to 1.5% of the gross offering proceeds. The Fund
expenses organizational and offering costs as they become payable under the investment advisory agreement.



U.S. Federal Income Taxes



The Fund has elected to
be treated for federal income tax purposes as a regulated investment company, or (‘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 Internal Revenue Code of 1986, or (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.



37







The Fund has evaluated
the implications of Accounting Standards Codification (“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 2014.



Valuation of Portfolio Investments



The investment portfolio
is recorded on a trade date basis. We determine the net asset value of our investment portfolio each quarter. Securities that are
publicly-traded are valued at the reported closing price on the valuation date. Forty two of the forty five investments were valued
using the closing market price at year end December 31, 2014. The exceptions were the investment in Education Management LLC, restructured
to private equity in the quarter, and the two notes from Endeavour International, one with a 12.00% interest rate and maturity
date of June 1, 2018, the second with a 12.00% interest rate and maturity date of March 1, 2018. The company made its intent to
restructure during the quarter, with the specific terms not yet finalized.



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



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



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



| | • | preliminary valuation conclusions are then documented and discussed with the members of our Board of Directors, or committee thereof; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | • | the Board of Directors, or a committee thereof, 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 Measurement ), 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. USBank is the fund custodian. Through USBank,
the fund uses FT Interactive, a third party valuation firm, to price the notes. The prices are reviewed by the CEO.



38







Level 3:  Unobservable
inputs for the asset or liability. These investments for the fund are an equity security, a Senior Secured First Lien Note, and
a Senior Secured Second Lien Note. The equity investment has been issued by a Company with terms settled. Its fair value was determined
by its relative amount of the total company enterprise value. The terms of the two notes, however, have not been finalized. The
fair value were derived from the relative amounts of the notes to the total enterprise value as indicated would be the intended
restructing by the issuer.



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



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



For loans and debt
securities with contractual payment-in-kind (“PIK”) interest, which represents contractual interest accrued and added
to the principal balance, we generally will not accrue PIK interest for accounting purposes if the portfolio company valuation
indicates that such PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt securities for
accounting purposes if we have reason to doubt our ability to collect such interest. Original issue discounts, market discounts
or premiums are accreted or amortized using the effective interest method as interest income. We record prepayment premiums on
loans and debt securities as interest income. Dividend income, if any, is recognized on an accrual basis to the extent that we
expect to collect such amount. We record prepayment premiums on loans and debt securities as interest income when we receive such
amounts. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring
fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees generated
in connection with investments will be recognized when earned.



Loans and debt securities,
including those that are individually identified as being impaired under Accounting Standards Codification 310 — Receivables,
or ASC 310, are generally placed on nonaccrual status immediately if, in the opinion of management, principal or interest is not
likely to be paid in accordance with the terms of the debt agreement, or when principal or interest is past due 90 days or more.
Interest accrued but not collected at the date a loan or security is placed on nonaccrual status is reversed against interest income.
Interest income is recognized on nonaccrual loans or debt securities only to the extent received in cash. How-ever, where there
is doubt regarding the ultimate collectability of principal, cash receipts, whether designated as principal or interest, are thereafter
applied to reduce the carrying value of the loan or debt security. Loans or securities are restored to accrual status only when
interest and principal payments are brought current and future payments are reasonably assured.



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



We measure realized
gains or losses by the difference between the net proceeds from the repayment or sale and the weighted-average amortized cost of
the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront
fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment
values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation when
gains or losses are realized.



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 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.



Portfolio and Investment Activity



For the year ended
December 31, 2014, we made $31.3 million of investments in new portfolio companies and had $11.8 million in aggregate amount of
exits and repayments, resulting in net exits and repayments of $19.5 million for the period. 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. As of December 31, 2014, we had one portfolio investment in default
with a fair value of $500 which represented a negligible amount of our portfolio.



As of December 31,
2014, we have invested an aggregate of approximately $37.4 million in 45 investment positions in 40 portfolio companies. As of
December 31, 2014, the fair value of our investment positions was $38.5 million (excluding cash and including the accrued interest
of $1.1 million). As of such date, our estimated gross annual portfolio current yield was 9.98% and gross annual portfolio yield
to maturity was 10.47% based on the purchase price of our investments. The average duration of our portfolio was approximately
2.53 years. As of December 31, 2014, we have exited 24 portfolio companies in full and 8 partially for aggregate sales proceeds
of $25.0 million. As of December 31, 2014, we had one portfolio investment in default of payment of its par value at maturity date,
Suntech Power Holdings Company, with a fair value of $500 which represented a negligible amount of our total portfolio. As of December
31, 2014, in addition to the investment in maturity date default, three additional investments had not paid coupon interest as
due beyond the thirty day grace period. Interest on these investments was accrued through the date that the last coupon payment
was received. These investments were placed in a nonaccrual status. Another investment, Education Management, LLC was restructured
as a private equity instrument, and no longer has income producing attributes.



39







The following table presents our portfolio
composition based on fair value at December 31, 2014:



|                                |  | At December 31, 2014        |      
|------------------------------- |  | --------------------------- | -----
|                                |  | Percentage ofTotalPortfolio |      
|Investments – Money Market      |  |                             | 7.7  
|Senior Secured First Lien Debt  |  |                             | 28.9 
|Senior Secured Second Lien Debt |  |                             | 14.0 
|Senior Unsecured Debt           |  |                             | 37.3 
|Senior Subordinated Debt        |  |                             | 9.9  
|Equity Securities               |  |                             | 2.2  
|Total                           |  |                             | 100.0



As of December 31, 2014, our investment
portfolio had a yield to maturity of 10.35%, and an average duration of 2.55 years.



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



|                                |  | At December 31, 2013        |      
|------------------------------- |  | --------------------------- | -----
|                                |  | Percentage ofTotalPortfolio |      
|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



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



The following table shows the portfolio
composition by industry grouping at fair value at December 31, 2014 (dollars in thousands):



|                                          |  | At December 31, 2014     |       
|----------------------------------------- |  | ------------------------ | ------
|                                          |  | Investments at FairValue |       
|Retail                                    |  | $                        | 5,827 
|Media: Advertising, Printing & Publishing |  |                          | 4,163 
|Healthcare & Pharmaceuticals              |  |                          | 3,547 
|Services: Consumer                        |  |                          | 3,497 
|Investments – Money Market                |  |                          | 3,104 
|Telecommunications                        |  |                          | 2,798 
|Aerospace and Defense                     |  |                          | 2,790 
|Metals & Mining                           |  |                          | 2,723 
|Consumer Goods: Durable                   |  |                          | 2,686 
|Energy: Oil & Gas                         |  |                          | 2,505 
|Services: Business                        |  |                          | 1,430 
|Automobile                                |  |                          | 1,337 
|Media: Broadcasting & Subscription        |  |                          | 1,201 
|High Tech Industries                      |  |                          | 858   
|Environmental Industries                  |  |                          | 795   
|Hotel, Gaming & Leisure                   |  |                          | 704   
|Beverage, Food & Tobacco                  |  |                          | 567   
|Total                                     |  | $                        | 40,532



40







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



Our fair value of total investments was
$40.5 million for the fiscal year ended December 31, 2014 as compared to $24.8 million for the fiscal year ended December 31, 2013.
The portfolio increase in 2014 is mainly due to invested proceeds from continuous investor closings in 2014. The additional proceeds
from investor closings throughout 2014 also led to a continued diversification of the portfolio by industry, as compared to 2013.



Discussion and Analysis of Results of Operations



Results of Operations:



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



Operating results for the years ended December
31, 2014, 2013 and 2012 are as follows (dollars in thousands):



|                                                                |  | For the YearEndedDecember 31,2014 |        |   | For the YearEndedDecember 31,2013 |   |       | For the YearEndedDecember 31,2012 | 
|--------------------------------------------------------------- |  | --------------------------------- | ------ | - | --------------------------------- | - | ----- | --------------------------------- | 
|                                                                |  | (Restated)                        |        |   | (Restated)                        |   |       | (Restated)                        | 
|Total investment income                                         |  | $                                 | 3,260  |   |                                   | $ | 1,659 |                                   | 
|Total expenses (income), net                                    |  |                                   | 2,441  |   |                                   |   | 861   |                                   | 
|Net investment income                                           |  |                                   | 819    |   |                                   |   | 798   |                                   | 
|Net realized gains                                              |  |                                   | 166    |   |                                   |   | 395   |                                   | 
|Net unrealized depreciation                                     |  |                                   | (6,259 | ) |                                   |   | (496  | )                                 | 
|Net increase (decrease) in net assets resulting from operations |  | $                                 | (5,274 | ) |                                   | $ | 697   |                                   | 



41







Revenue



We generated investment
income of $3.3 million for the fiscal year ended December 31, 2014, as compared to $1.7 million for the year ended December 31,
2013, and $0.1 million for the year ended December 31, 2012. The year ended December 31, 2014 included a non-recurring interest
earned in Other Income of $0.1 million. The interest resulted from the Due from Affiliate balance of $1.3 million that was paid
in full by our Manager during the year ended December 31, 2014.



Interest
from investments is in the form of interest and fees earned on senior secured loans, senior secured notes, subordinated
debt, senior unsecured debt and collateralized securities in our portfolio. The level of income we receive is directly
related to the balance of collectible income producing investments multiplied by the weighted average yield of our
investments. We expect the dollar amount of interest and any dividend income that we earn to increase as the size of our
investment portfolio increases. With the continuous offerings and periodic closings throughout 2013 and 2014, the assets
available for and deployed to investment received a boost. The average balance of the December 31, 2014 note portfolio was
significantly higher than the December 31, 2013 balance, and the average balances in December 31, 2013 portfolio saw a rise
as compared to the December 31, 2012 balance, resulting in the increase in interest income over the three years. At December
31, 2014, the weighted average coupon yield was 10.0%, as compared to 10.7% as of December 31, 2013. For the year ended
December 31, 2014, the average net assets were $36.7 million, as compared to $21.4 million for the year ended December 31,
2013, and $5.8 million for the year ended December 31, 2012.



For the fiscal year
ended December 31, 2014, four of the investments in our portfolio were on nonaccrual status as a result of the issuers being in
default of the coupon payment for more than the thirty day grace period. Interest income was accrued through the date of the last
coupon payment received for these investments. These four are Suntech Power Holdings Company, Ltd., 3%, May 15, 2013; NII Capital
Corp, 10%, August 15, 2016; Endeavor International Corporation, 12%, March 1, 2018; and Endeavor International Corporation 12%,
June 1, 2018. The investment in Education Management was restructured in 2014 to private equity for the year ended December 31,
2014. The new instrument does not accrue or pay interest.



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



Expenses



The composition of
our operating expenses for the years ended December 31, 2014, 2013 and 2012 was as follows (dollars in thousands):



|                                                                   |  | For the YearEndedDecember 31,2014 |       |  | For the YearEndedDecember 31,2013 |   |       | For the YearEndedDecember 31,2012 | 
|------------------------------------------------------------------ |  | --------------------------------- | ----- |  | --------------------------------- | - | ----- | --------------------------------- | 
|                                                                   |  | (Restated)                        |       |  | (Restated)                        |   |       | (Restated)                        | 
|Professional fees                                                  |  | $                                 | 258   |  |                                   | $ | 334   |                                   | 
|Director fees                                                      |  |                                   | 49    |  |                                   |   | 42    |                                   | 
|Insurance                                                          |  |                                   | 95    |  |                                   |   | 83    |                                   | 
|Management fees                                                    |  |                                   | 732   |  |                                   |   | 429   |                                   | 
|Administrative services – related party                            |  |                                   | 108   |  |                                   |   | -     |                                   | 
|General and administrative                                         |  |                                   | 847   |  |                                   |   | 427   |                                   | 
|Offering expense                                                   |  |                                   | 352   |  |                                   |   | 322   |                                   | 
|Operating expenses before expense waivers and reimbursements       |  |                                   | 2,441 |  |                                   |   | 1,637 |                                   | 
|Expense reimbursement                                              |  |                                   | -     |  |                                   |   | (776  | )                                 | 
|Total operating expenses net of expense waivers and reimbursements |  | $                                 | 2,441 |  |                                   | $ | 861   |                                   | 



For the year ended
December 31, 2014, 2013 and 2012, our operating expenses before expense waivers and reimbursements were $2.4 million, $1.6 million
and $0.5 million, respectively. The rise in expenses for the year ended December 31, 2014 as compared to the year ended December
31, 2013 was due to higher management fees with more assets under management, additional offering costs with continuous and larger
closings in 2014, a climb in administrative services-related party with more costs charged to the fund by the manager such as investor
and supervisory services, and growth in general and administrative expenses with an increase in travel, transfer agent, and due
diligence costs. The increase in expenses for the year ended December 31, 2014, was slightly offset with a reduction in professional
fees of $0.1 million. Administrative services-related parties include the costs outlined in the administration agreement. The amount
of offering costs is directly related to the gross offering price of shares sold in the period. Professional fees were lower in
2014, as less legal and audit support was needed than in 2013.



For the year ended
December 31, 2013 and 2012, our operating expenses before expense reimbursement were $1.6 million and $0.5 million, respectively.
The increase in expenses in 2013 was due to the continued offerings and more assets under management in 2013, as compared to 2012.
This led to larger management fees and offering costs. Professional services grew in 2013 as compared to 2012 as more legal and
audit help was needed in 2013. Our manager charged additional administrative services to the fund in 2013, as compared to 2012.
The increase in general and administrative expenses in 2013 as compared to 2012 was due to a rise in transfer agent fees and more
travel.



42







The management fees
for the years ended December 31, 2014, 2013 and 2012 remain at 2% of the net asset value. The offering costs are consistent at
1.5% of the gross closing proceeds for the years ended December 31, 2014, 2013 and 2012.



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 $0.0 million in 2014, $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, subject to the limitation that such organization and
offering costs may only be reimbursed to the extent of 1.5% of offering proceeds.



During the year ended December 31, 2014,
our Manager paid in full the Due from Affiliate balance of $1.3 million. In addition, during the year ended December 31, 2014,
we accrued $0.1 million of interest on such amount at the rate of 7.35% per annum.



Net Investment Income



Our net investment
income totaled $0.8 million, $0.8 million and $0.2 million for the years ended December 31, 2014, 2013 and 2012, respectively.
The balance of our net investment income was attributable to investment income less operating expenses for the period. For the
year ended December 31, 2014, total investment income was $3.3 million. For the year ended December 31, 2014, the total investment
income includes $0.1 million of nonrecurring interest, captured in other income.



The increase in net
investment income for the year ended December 31, 2014 as compared to the year ended December 31, 2013 is due to a higher earning
asset average balance in the investment portfolio. For the year ended December 31, 2014, total expenses before expense reimbursements
were $2.4 million. For the year ended December 31, 2013, total expenses before expense reimbursements were $1.6 million.



Net Realized Gains or Losses from Investments



For the years ended
December 31, 2014, 2013 and 2012, we had $11.8 million, $10.3 million and $1.2 million of principal repayments, resulting in $0.2
million, $0.4 million and $233 of realized gains, respectively.



Net Change in Unrealized Appreciation or Depreciation on
Investments



For the years ended
December 31, 2014, 2013 and 2012, we had $6.3 million, $0.5 million and $0.1 million of unrealized depreciation, respectively.
The increase in unrealized depreciation during fiscal 2014 was due to two main factors. First, the high yield corporate bond market
declined overall due to a variety of macro factors, including the ending of Quantitative Easing by the Federal Reserve, concerns
about the Chinese and European economies, and worries about the economic effect of various global conflicts, particularly in Ukraine
and the Middle East. For example, the BofA Merrill Lynch U.S. High Yield Master II Index total return declined 0.6% (including
interest and dividends on securities) during the year ended December 31, 2014, respectively.



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



Changes in Net Assets from Operations



For the years ended
December 31, 2014, 2013 and 2012, we recorded a net increase (decrease) in net assets resulting from operations of $(5.3) million,
$0.7 million and $0.03 million, respectively. This decrease is due to the reduction in fair value of our investment portfolio.
Consistent with the high yield bond market, the portfolio experienced a market value reduction, with a net unrealized depreciation
on investments of $(6.3) million for the year ended December 31, 2014. Based on 4,281,647, 2,150,019 and 246,231 weighted average
common shares outstanding for the years ended December 31, 2014, 2013 and 2012, respectively, our per share net increase (decrease)
in net assets resulting from operations was $(1.23), $0.32 and $0.13, respectively.



43







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. As of December 31, 2014, we had issued 5.5 million shares of common stock, including 0.2 million shares under
our distribution reinvestment plan (“DRIP”) and 0.08 million shares redeemed under our tender offer, gross proceeds
from our issuance total $55.5 million, including $1.9 million under our DRIP and $0.8 million in tender offer redemption shares.



We currently sell our
shares on a continuous basis. In the year ended December 31, 2014, we had two pricing reductions. On August 8, 2014, we decreased
the share price for new investments from $10.15 to $10.00 per share, and on November 18, 2014 we decreased the share price for
new investments from $10.00 to $9.75 per share. 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
are below our net asset value per share.



Prior to investing
in debt securities, we invest the net proceeds from our continuous offering primarily in money market funds that invest in U.S.
government securities and high-quality debt instruments maturing in one year or less from the time of investment. As of December
31, 2014, we had $3.1 million invested in money market investments pending investment in debt instruments. As of December 31, 2013,
we had $1.6 million invested in money market investments pending investment in debt instruments.



For the year ended
December 31, 2014, we experienced a net increase in money market investments of $1.5 million. For the year ended December 31, 2014,
approximately $17.9 million was generated from our financing activities, which primarily consisted of $20.5 million in net offering
proceeds received, offset by $2.0 million in distributions. We used approximately $17.9 million of cash in our operating activities
primarily as the result of the purchase of new portfolio debt investments of $11.8 million, offset by the receipt of proceeds from
the sale of, repayment of and principal payments on portfolio debt investments of $31.3 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, 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.



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        | %
|January 1, 2014 - March 31, 2014     |  |           | 0.18650 |  |            |  | 27 | %           |  |  | 13        | %
|April 1, 2014 - June 30, 2014        |  |           | 0.18650 |  |            |  | 49 | %           |  |  | 0         | %
|July 1, 2014  - September 30, 2014   |  |           | 0.18467 |  |            |  | 17 | %           |  |  | 3         | %
|October 1, 2014 - December 31, 2014  |  |           | 0.18145 |  |            |  | 15 | %           |  |  | 6         | %



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



44







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



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



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



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



|                                         |  | Year ended        |       |  | Year ended        |  |       | Year ended        | 
|---------------------------------------- |  | ----------------- | ----- |  | ----------------- |  | ----- | ----------------- | 
|Source of Distributions:                 |  | December 31, 2014 |       |  | December 31, 2013 |  |       | December 31, 2012 | 
|                                         |  | (Restated)        |       |  | (Restated)        |  |       | (Restated)        | 
|Distributions from net investment income |  | $                 | 819   |  |                   |  | 26.1  | %                 | 
|Distributions from realized gains        |  |                   | 166   |  |                   |  | 5.3   | %                 | 
|Distributions from paid in capital       |  |                   | 2,153 |  |                   |  | 68.6  | %                 | 
|Total                                    |  | $                 | 3,138 |  |                   |  | 100.0 | %                 | 



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 InvestmentIncome 
excludingoffering costs |   |       | % Distributionfrom Net 
InvestmentIncome excludingoffering costs |  |  | % Distributionsfrom RealizedGains excludingoffering costs |   |  | % Distributionsfrom Paid InCapital excludingoffering costs |   
|--------------- |  | ---------------- | --- |  | --------------------------------------------- | - | ----- | ---------------------------------------------------------------- |  |  | --------------------------------------------------------- | - |  | ---------------------------------------------------------- | --
|2014 (Restated) |  | $                | 352 |  |                                               | $ | 1,171 |                                                                  |  |  | 37                                                        | % |  |                                                            | 5 
|2013 (Restated) |  | $                | 322 |  |                                               | $ | 1,120 |                                                                  |  |  | 66                                                        | % |  |                                                            | 23
|2012 (Restated) |  | $                | 142 |  |                                               | $ | 292   |                                                                  |  |  | 100                                                       | % |  |                                                            | 0 



45







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.



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 might have been entered into through
arm’s-length transactions with unaffiliated parties. See “Contractual Obligations” for a discussion of the investment
advisory agreement we have with the Manager.



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



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



Off-Balance Sheet Arrangements



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



ITEM 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.



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, 2014 levels, would increase or decrease our net income by $0.4
million annually. The effect of a 100 basis point increase or decrease in prime interest rates from their December 31, 2014 levels
would result in an increase or decrease in net asset value of $0.4 million or 1.11%.



46







ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Index to Financial Statements



|                                                                                         | Page
|---------------------------------------------------------------------------------------- | ----
|                                                                                         |     
|Report of Independent Registered Public Accounting Firm                                  | F-2 
|Statements of Assets and Liabilities as of December 31, 2014 and 2013                    | F-3 
|Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012            | F-4 
|Statements of Changes in Net Assets for the Years Ended December 31, 2014, 2013 and 2012 | F-5 
|Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012            | F-6 
|Schedules of Investments as of December 31, 2014 and 2013                                | F-7 
|Notes to Financial Statements                                                            | F-9 











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, 2014 and 2013, including the
schedules of investments as of December 31, 2014 and 2013, and the related statements of operations, changes in net assets and
cash flows for the years ended December 31, 2014, 2013 and 2012. 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, 2014, 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 2014 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, 2014 and 2013, and the results of its operations, changes in its net assets and its cash flows for the years
ended December 31, 2014, 2013 and 2012, in conformity with accounting principles generally accepted in the United States of America.



/s/ Burr Pilger Mayer, Inc.



San Francisco, California

March 5, 2015, except for the effects of the restatement discussed
in Note 3 and as to Note 12 to the financial statements, as to which the date is July 16, 2015



F-2







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,
 2014 |       
|                                                                                                                                      |  | (Restated)         |       
|ASSETS                                                                                                                                |  |                    |       
|                                                                                                                                      |  |                    |       
|Investments, at fair value (amortized cost of $44,302 and $23,769, respectively)                                                      |  | $                  | 37,428
|Investments, money market at fair value (cost of $3,104 and $1,644, respectively)                                                     |  |                    | 3,104 
|Total investments, at fair value                                                                                                      |  | $                  | 40,532
|Interest receivable                                                                                                                   |  |                    | 1,050 
|                                                                                                                                      |  |                    |       
|Prepaid expenses                                                                                                                      |  |                    | 18    
|Due from related party                                                                                                                |  |                    | 167   
|Receivable for common stock purchased                                                                                                 |  |                    | 614   
|Total assets                                                                                                                          |  | $                  | 42,381
|                                                                                                                                      |  |                    |       
|LIABILITIES                                                                                                                           |  |                    |       
|Payable for unsettled trades                                                                                                          |  | $                  | 1,340 
|Management fees payable                                                                                                               |  |                    | 7     
|Accounts payable and accrued liabilities                                                                                              |  |                    | 183   
|Stockholder distributions payable                                                                                                     |  |                    | 163   
|Total liabilities                                                                                                                     |  | $                  | 1,693 
|                                                                                                                                      |  |                    |       
|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; 5,546,292 and 3,151,376 shares issued and outstanding, respectively |  |                    | 6     
|Paid-in capital in excess of par value                                                                                                |  |                    | 51,096
|Treasury stock at cost, 79,667 and 548 shares, respectively                                                                           |  |                    | (778  
|Accumulated distribution in excess of net investment income and net realized gain on investments                                      |  |                    | (2,762
|Net unrealized depreciation on investments                                                                                            |  |                    | (6,874
|Total net assets                                                                                                                      |  |                    | 40,688
|Total liabilities and net assets                                                                                                      |  | $                  | 42,381
|                                                                                                                                      |  |                    |       
|Net asset value per share                                                                                                             |  | $                  | 7.34  



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



F-3







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



STATEMENTS OF OPERATIONS

(in thousands, except share and per share
data)



|                                                                   |  | For the Year
 EndedDecember 31, |           |   | For the Year
 EndedDecember 31, |   |           | For the Year
 EndedDecember 31, | 
|------------------------------------------------------------------ |  | ------------------------------- | --------- | - | ------------------------------- | - | --------- | ------------------------------- | 
|                                                                   |  | 2014                            |           |   | 2013                            |   |           | 2012                            | 
|                                                                   |  | (Restated)                      |           |   | (Restated)                      |   |           | (Restated)(a)                   | 
|Investment income:                                                 |  |                                 |           |   |                                 |   |           |                                 | 
|Interest from investments                                          |  | $                               | 3,157     |   |                                 | $ | 1,657     |                                 | 
|Interest from cash and cash equivalents                            |  |                                 | -         |   |                                 |   | 1         |                                 | 
|Total interest income                                              |  |                                 | 3,157     |   |                                 |   | 1,658     |                                 | 
|Other income                                                       |  |                                 | 103       |   |                                 |   | 1         |                                 | 
|Total investment income                                            |  | $                               | 3,260     |   |                                 | $ | 1,659     |                                 | 
|                                                                   |  |                                 |           |   |                                 |   |           |                                 | 
|Operating expenses:                                                |  |                                 |           |   |                                 |   |           |                                 | 
|Professional fees                                                  |  | $                               | 258       |   |                                 | $ | 334       |                                 | 
|Directors fees                                                     |  |                                 | 49        |   |                                 |   | 42        |                                 | 
|Insurance                                                          |  |                                 | 95        |   |                                 |   | 83        |                                 | 
|Management fees                                                    |  |                                 | 732       |   |                                 |   | 429       |                                 | 
|Administrative services - related parties                          |  |                                 | 108       |   |                                 |   | -         |                                 | 
|General and administrative                                         |  |                                 | 847       |   |                                 |   | 427       |                                 | 
|Offering expense                                                   |  |                                 | 352       |   |                                 |   | 322       |                                 | 
|Operating expenses before expense waivers and reimbursements       |  | $                               | 2,441     |   |                                 | $ | 1,637     |                                 | 
|Expense reimbursement                                              |  |                                 | -         |   |                                 |   | (776      | )                               | 
|Total operating expenses net of expense waivers and reimbursements |  | $                               | 2,441     |   |                                 | $ | 861       |                                 | 
|                                                                   |  |                                 |           |   |                                 |   |           |                                 | 
|Net investment income                                              |  | $                               | 819       |   |                                 | $ | 798       |                                 | 
|                                                                   |  |                                 |           |   |                                 |   |           |                                 | 
|Realized and unrealized gain (loss) on investments:                |  |                                 |           |   |                                 |   |           |                                 | 
|Net realized gain from investments                                 |  | $                               | 166       |   |                                 | $ | 395       |                                 | 
|Net unrealized appreciation (depreciation) on investments          |  |                                 | (6,259    | ) |                                 |   | (496      | )                               | 
|Net realized and unrealized gain (loss) on investments             |  |                                 | (6,093    | ) |                                 |   | (101      | )                               | 
|                                                                   |  |                                 |           |   |                                 |   |           |                                 | 
|Net increase (decrease) in net assets resulting from operations    |  | $                               | (5,274    | ) |                                 | $ | 697       |                                 | 
|                                                                   |  |                                 |           |   |                                 |   |           |                                 | 
|Per share information - basic and diluted:                         |  |                                 |           |   |                                 |   |           |                                 | 
|Net investment income                                              |  | $                               | 0.19      |   |                                 | $ | 0.37      |                                 | 
|Net increase (decrease) in net assets resulting from operations    |  | $                               | (1.23     | ) |                                 | $ | 0.32      |                                 | 
|Weighted average common shares outstanding                         |  |                                 | 4,281,647 |   |                                 |   | 2,150,019 |                                 | 



| | (a) | The
Fund filed an Amendment No. 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 CHANGES IN NET ASSETS

(in thousands, except share and per share
data)



|                                                                                                  |  | For the Year
 EndedDecember 31,
 2014 |           |   | For the Year
 EndedDecember 31,
 2013 |   |           | For the Year
 EndedDecember 31,
 2012 | 
|------------------------------------------------------------------------------------------------- |  | ------------------------------------- | --------- | - | ------------------------------------- | - | --------- | ------------------------------------- | 
|                                                                                                  |  | (Restated)                            |           |   | (Restated)                            |   |           | (Restated)(a)                         | 
|Operations:                                                                                       |  |                                       |           |   |                                       |   |           |                                       | 
|Net investment income                                                                             |  | $                                     | 819       |   |                                       | $ | 798       |                                       | 
|Net realized gain from investments                                                                |  |                                       | 166       |   |                                       |   | 395       |                                       | 
|Net unrealized appreciation (depreciation) on investments                                         |  |                                       | (6,259    | ) |                                       |   | (496      | )                                     | 
|Net increase (decrease) in net assets from operations                                             |  |                                       | (5,274    | ) |                                       |   | 697       |                                       | 
|Stockholder distributions:                                                                        |  |                                       |           |   |                                       |   |           |                                       | 
|Distributions from net investment income                                                          |  |                                       | (819      | ) |                                       |   | (798      | )                                     | 
|Distributions from net realized gain on investments                                               |  |                                       | (166      | ) |                                       |   | (395      | )                                     | 
|Distributions from paid in capital                                                                |  |                                       | (2,153    | ) |                                       |   | (504      | )                                     | 
|Net decrease in net assets from stockholder distributions                                         |  |                                       | (3,138    | ) |                                       |   | (1,697    | )                                     | 
|Capital share transactions:                                                                       |  |                                       |           |   |                                       |   |           |                                       | 
|Issuance of common stock, net of issuance costs                                                   |  |                                       | 20,562    |   |                                       |   | 19,412    |                                       | 
|Reinvestment of stockholder distributions                                                         |  |                                       | 1,134     |   |                                       |   | 681       |                                       | 
|Total investment contributions transferred in-kind                                                |  |                                       | 758       |   |                                       |   | -         |                                       | 
|Treasury captial/redemptions                                                                      |  |                                       | (778      | ) |                                       |   | (5        | )                                     | 
|Net increase in net assets from capital share transactions                                        |  |                                       | 21,676    |   |                                       |   | 20,088    |                                       | 
|                                                                                                  |  |                                       |           |   |                                       |   |           |                                       | 
|Total increase in net assets                                                                      |  |                                       | 13,264    |   |                                       |   | 19,088    |                                       | 
|Net assets at beginning of period                                                                 |  |                                       | 27,424    |   |                                       |   | 8,336     |                                       | 
|Net assets at end of period                                                                       |  | $                                     | 40,688    |   |                                       | $ | 27,424    |                                       | 
|                                                                                                  |  |                                       |           |   |                                       |   |           |                                       | 
|Net asset value per common share                                                                  |  | $                                     | 7.34      |   |                                       | $ | 8.70      |                                       | 
|Common shares outstanding at end of period                                                        |  |                                       | 5,546,292 |   |                                       |   | 3,151,376 |                                       | 
|                                                                                                  |  |                                       |           |   |                                       |   |           |                                       | 
|Accumulated distribution in excess of net investment income and  net realized gain on investments |  | $                                     | (2,762    | ) |                                       | $ | (609      | )                                     | 



| | (a) | The
Fund filed an Amendment No. 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.



STATEMENTS OF CASH FLOWS

(in thousands, except share and per share
data)



|                                                                                                                         |  | For the Year
 EndedDecember 31, 
2014 |         |   | For the Year
 EndedDecember 31, 
2013 |   |         | For the Year
 EndedDecember 31,
 2012 | 
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------- | ------- | - | ------------------------------------- | - | ------- | ------------------------------------- | 
|                                                                                                                         |  | (Restated)                            |         |   | (Restated)                            |   |         | (Restated)(a)                         | 
|Operating activities:                                                                                                    |  |                                       |         |   |                                       |   |         |                                       | 
|Net increase (decrease) in net assets from operations                                                                    |  | $                                     | (5,274  | ) |                                       | $ | 697     |                                       | 
|Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities: |  |                                       |         |   |                                       |   |         |                                       | 
|Paid-in-kind interest income                                                                                             |  |                                       | (19     | ) |                                       |   | -       |                                       | 
|Net accretion of discount on investments                                                                                 |  |                                       | (67     | ) |                                       |   | (61     | )                                     | 
|Repayments of investments                                                                                                |  |                                       | 11,765  |   |                                       |   | 10,314  |                                       | 
|Purchase of investments                                                                                                  |  |                                       | (31,308 | ) |                                       |   | (27,685 | )                                     | 
|Repayments of investments - money market                                                                                 |  |                                       | 34,047  |   |                                       |   | 29,777  |                                       | 
|Purchase of investments - money market                                                                                   |  |                                       | (35,507 | ) |                                       |   | (30,117 | )                                     | 
|Net realized gain from investments                                                                                       |  |                                       | (166    | ) |                                       |   | (395    | )                                     | 
|Net unrealized depreciation on investments                                                                               |  |                                       | 6,259   |   |                                       |   | 496     |                                       | 
|(Increase) decrease in operating assets:                                                                                 |  |                                       |         |   |                                       |   |         |                                       | 
|Interest receivable                                                                                                      |  |                                       | (471    | ) |                                       |   | (447    | )                                     | 
|Prepaid expenses                                                                                                         |  |                                       | (10     | ) |                                       |   | (3      | )                                     | 
|Due from related party                                                                                                   |  |                                       | 1,228   |   |                                       |   | (850    | )                                     | 
|Receivable for common stock purchased                                                                                    |  |                                       | 361     |   |                                       |   | (245    | )                                     | 
|Increase (decrease) in operating liabilities:                                                                            |  |                                       |         |   |                                       |   |         |                                       | 
|Payable for unsettled trades                                                                                             |  |                                       | 1,236   |   |                                       |   | 104     |                                       | 
|Management fees payable                                                                                                  |  |                                       | (1      | ) |                                       |   | (13     | )                                     | 
|Accounts payable and accrued liabilities                                                                                 |  |                                       | 54      |   |                                       |   | 58      |                                       | 
|Net cash used in operating activities                                                                                    |  |                                       | (17,873 | ) |                                       |   | (18,370 | )                                     | 
|                                                                                                                         |  |                                       |         |   |                                       |   |         |                                       | 
|Financing activities:                                                                                                    |  |                                       |         |   |                                       |   |         |                                       | 
|Proceeds from issuance of shares of common stock, net                                                                    |  |                                       | 20,562  |   |                                       |   | 19,412  |                                       | 
|Redemptions of common stock                                                                                              |  |                                       | 47      |   |                                       |   | -       |                                       | 
|Stockholder distributions                                                                                                |  |                                       | (1,958  | ) |                                       |   | (1,037  | )                                     | 
|Treasury stock                                                                                                           |  |                                       | (778    | ) |                                       |   | (5      | )                                     | 
|Net cash provided by financing activities                                                                                |  |                                       | 17,873  |   |                                       |   | 18,370  |                                       | 
|                                                                                                                         |  |                                       |         |   |                                       |   |         |                                       | 
|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                                                                                                |  | $                                     | 102     |   |                                       | $ | 35      |                                       | 
|Cash distribution payable                                                                                                |  | $                                     | 61      |   |                                       | $ | 64      |                                       | 
|DRIP distribution paid                                                                                                   |  | $                                     | 1,116   |   |                                       | $ | 680     |                                       | 



| | (a) | The
Fund filed an Amendment No. 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-6







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



SCHEDULE OF INVESTMENTS

(dollars in thousands)

December 31,
2014



|Portfolio
    Company                           |  | Industry                                  |  | Investment

    CouponRate, Maturity

    Date |  | Principal |        |  | Amortized

    Cost |   |        | Fair
    Value |  |   | %
    ofNetAssets | 
|----------------------------------------------- |  | ----------------------------------------- |  | ---------------------------------------------- |  | --------- | ------ |  | ------------------- | - | ------ | -------------- |  | - | ----------------- | 
|Senior Secured First Lien Debt - 28.8%
    (b)  |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|Accuride Corp.                                  |  | Consumer Goods: Durable                   |  | 9.50%, 8/1/2018                                |  | $         | 1,400  |  |                     | $ | 1,435  |                |  | $ | 1,442             | 
|American Media, Inc.                            |  | Media: Advertising, Printing & Publishing |  | 11.50%, 12/15/2017                             |  |           | 1,320  |  |                     |   | 1,382  |                |  |   | 1,307             | 
|APX Group, Inc.                                 |  | Services: Consumer                        |  | 6.38%, 12/1/2019                               |  |           | 825    |  |                     |   | 825    |                |  |   | 790               | 
|Caesars Entertainment Operating Co., Inc. (a)   |  | Hotel, Gaming & Leisure                   |  | 11.25%, 6/1/2017                               |  |           | 860    |  |                     |   | 765    |                |  |   | 630               | 
|Cambrium Learning Group, Inc.                   |  | Services: Consumer                        |  | 9.75%, 2/15/2017                               |  |           | 1,375  |  |                     |   | 1,392  |                |  |   | 1,347             | 
|EarthLink Holdings Corp. (a)                    |  | Telecommunications                        |  | 7.38%, 6/1/2020                                |  |           | 40     |  |                     |   | 41     |                |  |   | 41                | 
|Endeavour International Corp. (d)               |  | Energy: Oil & Gas                         |  | 12.00%, 3/1/2018                               |  |           | 525    |  |                     |   | 551    |                |  |   | 578               | 
|EuraMax International, Inc.                     |  | Metals & Mining                           |  | 9.50%, 4/1/2016                                |  |           | 1,475  |  |                     |   | 1,464  |                |  |   | 1,371             | 
|Goodman Networks, Inc.                          |  | Telecommunications                        |  | 12.13%, 7/1/18                                 |  |           | 800    |  |                     |   | 849    |                |  |   | 826               | 
|Kratos Defense & Security Solutions, Inc. (a)   |  | Aerospace and Defense                     |  | 7.00%, 5/15/19                                 |  |           | 1,550  |  |                     |   | 1,325  |                |  |   | 1,318             | 
|Ryerson Inc./Joseph T Ryerson & Son, Inc.       |  | Metals & Mining                           |  | 9.00%, 10/15/2017                              |  |           | 1,315  |  |                     |   | 1,376  |                |  |   | 1,351             | 
|Toys R Us Property Co II LLC                    |  | Retail                                    |  | 8.50%, 12/1/2017                               |  |           | 725    |  |                     |   | 736    |                |  |   | 720               | 
|Sub Total Senior
    Secured First Lien Debt    |  |                                           |  |                                                |  | $         | 12,210 |  |                     | $ | 12,141 |                |  | $ | 11,721            | 
|                                                |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|Senior Secured Second Lien Debt - 14.0%
    (b) |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|Aspect Software, Inc.                           |  | Telecommunications                        |  | 10.63%, 5/15/2017                              |  | $         | 1,302  |  |                     | $ | 1,322  |                |  | $ | 1,230             | 
|Bon-ton Department Stores, Inc.                 |  | Retail                                    |  | 10.63%, 7/15/2017                              |  |           | 1,390  |  |                     |   | 1,384  |                |  |   | 1,383             | 
|Claire's Stores, Inc.                           |  | Retail                                    |  | 8.88%, 3/15/2019                               |  |           | 825    |  |                     |   | 805    |                |  |   | 668               | 
|Endeavour International Corp. (d)               |  | Energy: Oil & Gas                         |  | 12.00%, 6/1/2018                               |  |           | 725    |  |                     |   | 708    |                |  |   | 239               | 
|Logan's Roadhouse, Inc.                         |  | Beverage, Food & Tobacco                  |  | 10.75%, 10/15/2017                             |  |           | 770    |  |                     |   | 738    |                |  |   | 566               | 
|Radiation Therapy Services, Inc.                |  | Healthcare & Pharmaceuticals              |  | 8.88%, 1/15/2017                               |  |           | 1,285  |  |                     |   | 1,277  |                |  |   | 1,298             | 
|Saratoga Resources, Inc.                        |  | Energy: Oil & Gas                         |  | 12.50%, 7/1/2016                               |  |           | 885    |  |                     |   | 897    |                |  |   | 310               | 
|Sub Total Senior
    Secured Second Lien Debt   |  |                                           |  |                                                |  | $         | 7,182  |  |                     | $ | 7,131  |                |  | $ | 5,694             | 
|                                                |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|Senior Unsecured Debt - 37.2% (b)               |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|APX Group, Inc.                                 |  | Services: Consumer                        |  | 8.75%, 12/1/2020                               |  | $         | 575    |  |                     | $ | 553    |                |  | $ | 486               | 
|Armored Autogroup, Inc.                         |  | Consumer Goods: Durable                   |  | 9.25%, 11/1/2018                               |  |           | 1,250  |  |                     |   | 1,247  |                |  |   | 1,244             | 
|Caesar's Entertainment Corp. (a)                |  | Hotel, Gaming & Leisure                   |  | 10.75%, 2/1/2016                               |  |           | 495    |  |                     |   | 475    |                |  |   | 74                | 
|Cenveo Corp.                                    |  | Services: Business                        |  | 11.50%, 5/15/2017                              |  |           | 1,571  |  |                     |   | 1,576  |                |  |   | 1,430             | 
|Clear Channel Communications                    |  | Media: Broadcasting & Subscription        |  | 10.00%, 1/15/2018                              |  |           | 1,400  |  |                     |   | 1,335  |                |  |   | 1,200             | 
|Colt Defense LLC                                |  | Aerospace and Defense                     |  | 8.75%, 11/15/2017                              |  |           | 1,253  |  |                     |   | 1,073  |                |  |   | 507               | 
|DynCorp International Inc.                      |  | Aerospace and Defense                     |  | 10.38%, 7/1/2017                               |  |           | 1,135  |  |                     |   | 1,148  |                |  |   | 965               | 
|EarthLink Holdings Corp. (a)                    |  | Telecommunications                        |  | 8.88%, 5/15/19                                 |  |           | 375    |  |                     |   | 366    |                |  |   | 370               | 
|Gentiva Health Services, Inc.                   |  | Healthcare & Pharmaceuticals              |  | 11.50%, 9/1/2018                               |  |           | 925    |  |                     |   | 967    |                |  |   | 984               | 
|Gymboree Corp.                                  |  | Retail                                    |  | 9.13%, 12/1/2018                               |  |           | 810    |  |                     |   | 764    |                |  |   | 312               | 
|Hutchinson Technology, Inc.                     |  | High Tech Industries                      |  | 8.50%, 1/15/2026,                              |  |           |        |  |                     |   |        |                |  |   |                   | 
|                                                |  |                                           |  | puttable on 01/15/2015                         |  |           | 858    |  |                     |   | 819    |                |  |   | 858               | 
|NII Capital Corp. (d)                           |  | Telecommunications                        |  | 10.00%, 8/15/2016                              |  |           | 960    |  |                     |   | 921    |                |  |   | 331               | 
|Nuverra Environmental Solutions, Inc.           |  | Environmental Industries                  |  | 9.88%, 4/15/2018                               |  |           | 1,325  |  |                     |   | 1,361  |                |  |   | 795               | 
|Seitel, Inc.                                    |  | Energy: Oil & Gas                         |  | 9.50%, 4/15/2019                               |  |           | 1,575  |  |                     |   | 1,574  |                |  |   | 1,307             | 
|Sitel LLC / Sitel Finance Corp                  |  | Media: Advertising, Printing & Publishing |  | 11.50%, 4/1/2018                               |  |           | 1,450  |  |                     |   | 1,413  |                |  |   | 1,138             | 
|Suntech Power Holdings Company, Ltd. (a)(c)     |  | Environmental Industries                  |  | 3.00%, 5/15/13                                 |  |           | 100    |  |                     |   | 107    |                |  |   | 1                 | 
|Toys R Us Inc.                                  |  | Retail                                    |  | 10.38%, 8/15/2017                              |  |           | 860    |  |                     |   | 821    |                |  |   | 684               | 
|UCI International Inc                           |  | Automobile                                |  | 8.63%, 2/15/2019                               |  |           | 1,400  |  |                     |   | 1,358  |                |  |   | 1,337             | 
|Visant Corp.                                    |  | Media: Advertising, Printing & Publishing |  | 10.00%, 10/1/2017                              |  |           | 1,275  |  |                     |   | 1,238  |                |  |   | 1,106             | 
|Sub Total Senior
    Unsecured Debt             |  |                                           |  |                                                |  | $         | 19,592 |  |                     | $ | 19,116 |                |  | $ | 15,129            | 
|                                                |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|Senior Subordinated Debt - 9.8% (b)             |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|Affinion Group, Inc.                            |  | Media: Advertising, Printing & Publishing |  | 13.50%, 8/15/2018                              |  | $         | 816    |  |                     | $ | 707    |                |  | $ | 612               | 
|Central Garden and Pet Co.                      |  | Retail                                    |  | 8.25%, 3/1/2018                                |  |           | 1,400  |  |                     |   | 1,440  |                |  |   | 1,411             | 
|Claires Stores, Inc                             |  | Retail                                    |  | 10.50%, 6/1/2017                               |  |           | 715    |  |                     |   | 711    |                |  |   | 651               | 
|DJO Finance, LLC.                               |  | Healthcare & Pharmaceuticals              |  | 9.75%, 10/15/2017                              |  |           | 1,265  |  |                     |   | 1,313  |                |  |   | 1,265             | 
|QuickSilver Resources, Inc.                     |  | Energy: Oil & Gas                         |  | 7.13%, 4/1/2016                                |  |           | 890    |  |                     |   | 863    |                |  |   | 71                | 
|Sub Total Senior
    Subordinated Debt          |  |                                           |  |                                                |  | $         | 5,086  |  |                     | $ | 5,034  |                |  | $ | 4,010             | 
|                                                |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|Equity Securities - 2.1% (b)                    |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|Education Management LLC                        |  | Services: Consumer                        |  |                                                |  | $         | 874    |  |                     | $ | 880    |                |  | $ | 874               | 
|Sub Total Equity
    Securities                 |  |                                           |  |                                                |  | $         | 874    |  |                     | $ | 880    |                |  | $ | 874               | 
|                                                |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|Investments - Money Market - 7.7% (b)           |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|Investments - U.S. Bank Money Market            |  |                                           |  | 0.03%                                          |  | $         | 3,104  |  |                     | $ | 3,104  |                |  | $ | 3,104             | 
|Sub Total Investments
    - Money Market        |  |                                           |  |                                                |  | $         | 3,104  |  |                     | $ | 3,104  |                |  | $ | 3,104             | 
|                                                |  |                                           |  |                                                |  |           |        |  |                     |   |        |                |  |   |                   | 
|TOTAL INVESTMENTS
    - 99.6% (b)               |  |                                           |  |                                                |  |           |        |  |                     | $ | 47,406 |                |  | $ | 40,532            | 



| | (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., Earthlink Holdings Corp., Kratos Defense & Security Solutions, Inc., and Suntech Power Holdings
Company, Ltd. Non-qualifying assets represent 6.0% of the Company’s portfolio at fair value. As a BDC, the Company can only
invest 30% of its portfolio in non-qualifying assets.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Percentages
are based on net assets of $40,688 as of December 31, 2014.
| | --- | -----------------------------------------------------------------------

| | (c) | Non-U.S.
company. The principal place of business for Suntech Power Holdings Company, Ltd. Is China. Non-income producing as of December
31, 2014.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Non-income
producing as of December 31, 2014.
| | --- | ---------------------------------------------



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



F-7







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



SCHEDULE OF INVESTMENTS

(dollars in thousands)

December 31,
2013



|Portfolio
    Company (a)                        |  | Industry                                  |  | InvestmentCouponRate, Maturity
 Date |  | Principal |       |  | Amortized

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





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

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

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

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



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



F-8







VII PEAKS CO-OPTIVIST INCOME BDC II,
INC.



NOTES TO FINANCIAL STATEMENTS



December 31, 2014



Note 1.  Nature of Operations



VII Peaks Co-Optivist
TM Income BDC II, Inc. (the “Fund” or “we”), a Maryland corporation formed in August 3, 2011,
is an externally managed, non-diversified closed-end management investment company that has elected to be treated as a business
development company under the Investment Company Act of 1940, as amended or (“1940 Act”). In addition, we have elected
to be treated for federal income tax purpose, and intend to qualify annually, as a regulated investment company, or (“RIC”),
under Subchapter M of the Internal Revenue Code of 1986, as amended, or (the “Code”).



We 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-OptivistTM 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 company’s 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 company’s management to effect and/or participate in a restructuring or exchange of the invested securities for new
securities.



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 this offering. 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 companies with a minimum enterprise
value of $200 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 shareholders
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 making distributions on a semi-monthly
basis to our shareholders.



Between 2001 and 2008,
corporate debt levels and the supply of leverage offered by banks and other investors began a steady increase. Since then, corporate
debt has continued to increase, with the financing sources less available. We believe a significant amount of this debt will be
subject to a redemption event prior to 2021. Many of the companies that have outstanding issues of such debt have not, or been
unable 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-OptivistTM 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.



F-9







Note 2.  Summary of Significant
Accounting Policies



Basis of Presentation



The financial statements
of the Fund included herein were prepared in conformity with accounting principles generally accepted in the United States of America
("U.S. GAAP") and pursuant to the requirements for reporting on Form 10-K/A.



Use of Estimates in the Preparation of Financial Statements



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



Investments – Money Market



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



Organizational and Offering Costs



The Fund is a closed-end
fund with a continuous offering period. Under the investment advisory agreement between the Fund and the Manager, our Manager fronts
the cost of the organizational and offering expenses which are reimbursable by the Fund with up to 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.



The Fund has evaluated
the implications of Accounting Standards Codification (“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 2014.



New Accounting Pronouncements



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



In May 2014, the FASB
issued ASU No. 2014-09, Revenue with Contracts from Customers. ASU No. 2014-09 provides clarification on the principles to recognize
revenue and to develop a common standard between GAAP and IFRS. The guidance will be effective in 2016. Management is currently
evaluating the impact of these changes but does not believe it will have a material impact.



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



Revenue Recognition



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



F-10







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 $3.3 million for the year ended December 31, 2014, as compared to $1.7 million for the year ended December 31, 2013,
respectively. The increase is due to a larger note portfolio earning interest in 2014 as compared to 2013. At December 31, 2014,
the weighted average coupon yield was 10.7%, equal to the 10.7% as of December 31, 2013. For the year ended December 31, 2014,
the average net assets were $36.7 million, as compared to $21.4 million for the year ended December 31, 2013.



For the year ended
December 31, 2014, four of the investments in the portfolio did not accrue interest as the issuers were in default of the coupon
payment for more than the thirty day grace period. Interest income was accrued through the date of the last coupon payment received
for these investments. These four are Suntech Power Holdings Company, Ltd., 3%, May 15, 2013, NII Capital Corp, 10%, August 15,
2016, Endeavor International Corporation, 12%, March 1, 2018 and Endeavor International Corporation 12%, June 1, 2018. The investment
in Education Management, LLC has been restructured to private equity. The instrument does not accrue or pay interest.



Expense Reimbursement Agreement



We entered into an
expense reimbursement agreement with our prior manager under which the prior manager agreed to reimburse us for certain U.S. GAAP
compliant expenses recognized on our quarterly financial statements for 2012, retroactive to the date of formation on August 3,
2011. In 2013, the expense reimbursement agreement was modified to exclude management fees and incentive fees payable to the prior
manager effective as of January 1, 2013. 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 zero in 2014, $0.8 million in 2013 and $0.5 million in 2012.



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



During the year ended
December 31, 2014, our Manager paid in full the due from affiliate balance of $1.3 million. In addition, during the year ended
December 31, 2014, we accrued $0.1 million of interest on such amount at the rate of 7.35% per annum.



Note 3. Restatement of previously issued
financial statements.



We determined that we had incorrectly accounted
for certain offering costs. The Fund’s agreement with its Manager provides that the Manager is to bear all offering costs,
but the Fund is obligated to reimburse the Manager for such offering costs at the rate of 1.5% of gross offering proceeds. The
Fund determined that some offering costs were paid by the Fund instead of the Manager during the period from the fourth quarter
of 2013 to the fourth quarter of 2014. The restatement reduces operating expenses (and increases net investment income) by the
amount of offering costs erroneously paid by the Fund in the relevant period, and reflects the amount as a receivable from the
Manager. In the period ending June 30, 2015, the Manager repaid the receivable. At the same time, we have reclassified certain
other operating expenses to conform with the Fund’s current method of classifying operating expenses to facilitate comparability
of financial statements among different periods. We have restated our financial statements and related footnotes for the year
ended December 31, 2014. 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).



F-11







|                                                                |  | December 31, 2014       |       
|--------------------------------------------------------------- |  | ----------------------- | ------
|                                                                |  | As previously
 reported |       
|Statement of Assets and Liabilities                             |  |                         |       
|                                                                |  |                         |       
|Due from related party                                          |  | $                       | 28    
|Total assets                                                    |  | $                       | 42,242
|                                                                |  |                         |       
|Accumulated distribution in excess of net investment income     |  | $                       | (2,901
|Total net assets                                                |  | $                       | 40,549
|Total liabilities and net assets                                |  | $                       | 42,242
|                                                                |  |                         |       
|Net asset value per share                                       |  | $                       | 7.31  
|                                                                |  |                         |       
|Statement of Operations                                         |  |                         |       
|                                                                |  |                         |       
|Administrative services – related parties                       |  | $                       | 354   
|General and administrative                                      |  | $                       | 517   
|Organizational and offering expense                             |  | $                       | 524   
|Expenses before expense waivers and reimbursements              |  | $                       | 2,529 
|Total expenses (income) net expense waivers and reimbursements  |  | $                       | 2,529 
|                                                                |  |                         |       
|Net investment income (loss)                                    |  | $                       | 731   
|                                                                |  |                         |       
|Net increase (decrease) in net assets resulting from operations |  | $                       | (5,362
|                                                                |  |                         |       
|Per share information - basic and diluted:                      |  |                         |       
|Net investment income (loss)                                    |  | $                       | 0.17  
|Net increase (decrease) in net assets resulting from operations |  | $                       | (1.25 
|                                                                |  |                         |       
|Statement of Changes in Net Assets                              |  |                         |       
|                                                                |  |                         |       
|Net investment income (loss)                                    |  | $                       | 731   
|Net increase (decrease) in net assets resulting from operations |  | $                       | (5,362
|                                                                |  |                         |       
|Distributions from net investment income                        |  | $                       | (731  
|Distributions from paid in capital                              |  | $                       | (2,241
|                                                                |  |                         |       
|Total increase in net assets                                    |  | $                       | 13,176
|Net assets at beginning of period                               |  | $                       | 27,373
|Net assets at end of period                                     |  | $                       | 40,549
|                                                                |  |                         |       
|Accumulated distribution in excess of net investment income     |  | $                       | (2,901
|                                                                |  |                         |       
|Statement of Cash Flows                                         |  |                         |       
|                                                                |  |                         |       
|Net increase (decrease) in net assets resulting from operations |  | $                       | (5,362
|Due from related party                                          |  | $                       | 1,316 
|                                                                |  |                         |       

Note 4. Valuation of Portfolio
Investments



The investment portfolio
is recorded on a trade date basis. The Fund determines the net asset value of its investment portfolio each quarter. Securities
that are publicly-traded are valued at the reported closing price on the valuation date. Forty two of the forty five investments
were valued using the closing market price at period end December 31, 2014. The exceptions were the investments in Education Management
LLC, Endeavor International Corporation, 12%, March 1, 2018 and Endeavor International Corporation 12%, June 1, 2018. Endeavor
International, LLC has not finalized the terms of a restructuring of both notes. Education Management has been restructured to
private equity.



Securities that are
not publicly-traded are valued at fair value as determined in good faith by the Board of Directors, or committee thereof. 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 service. 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, or committee thereof; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | • | the Board of Directors, or committee thereof, 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.



F-12







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. USBank is the fund custodian. Through USBank,
the fund uses FT Interactive, a third party valuation firm, to price the notes. The prices are reviewed by the CEO.



Level 3:  Unobservable
inputs for the asset or liability. These investments for the fund are an equity security, a Senior Secured First Lien Note, and
a Senior Secured Second Lien Note. The equity investment has been issued by a Company with terms settled. Its fair value was determined
by its relative amount of the total company enterprise value. The terms of the two notes, however, have not been finalized. The
fair value were derived from the relative amounts of the notes to the total enterprise value as indicated would be the intended
restructing by the issuer.



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



|                                     |  | Level 1 |       |  | Level 2 |   |        | Level 3 |  |   | Total | 
|------------------------------------ |  | ------- | ----- |  | ------- | - | ------ | ------- |  | - | ----- | 
|Investments – U.S. Bank Money Market |  | $       | 3,104 |  |         | $ | —      |         |  | $ | —     | 
|Senior Secured First Lien Debt       |  |         | —     |  |         |   | 11,143 |         |  |   | 578   | 
|Senior Secured Second Lien Debt      |  |         | —     |  |         |   | 5,455  |         |  |   | 239   | 
|Senior Unsecured Debt                |  |         | —     |  |         |   | 15,129 |         |  |   | —     | 
|Senior Subordinated Debt             |  |         | —     |  |         |   | 4,010  |         |  |   | —     | 
|Equity Securities                    |  |         | —     |  |         |   | —      |         |  |   | 874   | 
|Total                                |  | $       | 3,104 |  |         | $ | 35,737 |         |  | $ | 1,691 | 



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



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



There were three transfers between levels
for the period ended December 31, 2014. These transfers were Education Management, LLC., originally, 15%, July 1, 2018. The interest
bearing note was restructured by the company to a non-interest bearing private equity holding, and two Endeavor International notes.
The first note had a March 1, 2018 maturity date and 12% coupon. The second note had a June 1, 2018 maturity date and 12% coupon.



F-13







There were no transfers between levels for
the period ended December 31, 2013.



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



|                                |  | Level 1 |   |  | Level 2 |   |        | Level 3 |  |   | Total | 
|------------------------------- |  | ------- | - |  | ------- | - | ------ | ------- |  | - | ----- | 
|Senior Secured First Lien Debt  |  | $       | — |  |         | $ | (578   | )       |  | $ | 578   | 
|Senior Secured Second Lien Debt |  |         | — |  |         |   | (239   | )       |  |   | 239   | 
|Equity Securities               |  |         | — |  |         |   | (874   | )       |  |   | 874   | 
|Total                           |  | $       | — |  |         | $ | (1,691 | )       |  | $ | 1,691 | 



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



Changes in Level 3 assets measured at fair
value for the year ended December 31, 2014 are as follows:



|                                |  | Fair Value
 atDecember 31,2013 |       |  | Purchases(Sales andSettlement) |   |     | Amortizationand Accretionof Fixed IncomePremiums andDiscounts |  |   | RealizedandUnrealizedGains(Losses) |  |  | Fair
ValueatDecember
31,2014 |      |   | Change inUnrealizedGains and(Losses) forInvestmentsheld as ofDecember 31,2014 |  
|------------------------------- |  | ------------------------------ | ----- |  | ------------------------------ | - | --- | ------------------------------------------------------------- |  | - | ---------------------------------- |  |  | ---------------------------- | ---- | - | ----------------------------------------------------------------------------- | -
|Senior Secured First Lien Debt  |  | $                              | 539   |  |                                | $ | 25  |                                                               |  | $ | —                                  |  |  | $                            | 14   |   |                                                                               | $
|Senior Secured Second Lien Debt |  |                                | 655   |  |                                |   | —   |                                                               |  |   | —                                  |  |  |                              | (416 | ) |                                                                               |  
|Equity Securities               |  |                                | 293   |  |                                |   | 648 |                                                               |  |   | —                                  |  |  |                              | (67  | ) |                                                                               |  
|Total                           |  | $                              | 1,487 |  |                                | $ | 673 |                                                               |  | $ | —                                  |  |  | $                            | (469 | ) |                                                                               | $



Realized and unrealized
gains and losses are included in net realized gain (loss) on investments and net change in unrealized gain (loss) on investments
in the Statement of Operations. The change in unrealized losses for Level 3 investments still held as of December 31, 2014 of $469
is included in net change in net unrealized gain (loss) on investments in the Statement of Changes in Net Assets for the year ended
December 31, 2014.



The following table provides quantitative
information regarding Level 3 fair value measurements as of December 31, 2014 (dollars in thousands):



|                                |  |            |       |  |                    |             |                   |                   |      |   |       | Range   | 
|------------------------------- |  | ---------- | ----- |  | ------------------ | ----------- | ----------------- | ----------------- | ---- | - | ----- | ------- | 
|                                |  | Fair Value |       |  | ValuationTechnique |             | UnobservableInput |                   | Mean |   |       | Minimum | 
|Senior Secured First Lien Debt  |  | $          | 578   |  |                    | Liquidation |                   | Transaction Value |      | $ | 578   |         | 
|Senior Secured Second Lien Debt |  |            | 239   |  |                    | Liquidation |                   | Transaction Value |      |   | 258   |         | 
|Equity Securities               |  |            | 874   |  |                    | Liquidation |                   | Transaction Value |      |   | 1,143 |         | 
|Total                           |  | $          | 1,691 |  |                    |             |                   |                   |      |   |       |         | 



The primary significant
unobservable input used in the fair value measurement of the Company's equity securities is the fair value of the issuer's equity
securities exchanged with the unsecured note in the year ended December 31, 2014. Significant increases or decreases in the fair
value of the issuer's equity securities would result in a significantly lower or higher fair value measurement. The primary significant
unobservable input used in the fair value measurement of the Company's Senior Secured First Lien and Senior Secured Second Lien
was the terms of the restructuring offered by the issuer, not yet final.



F-14







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



|                                |  | Investments atAmortized Cost |        |  | Investments at 
FairValue |   |        | Fair ValuePercentageof Total
 Portfolio | 
|------------------------------- |  | ---------------------------- | ------ |  | ------------------------- | - | ------ | --------------------------------------- | 
|Investments – Money Market      |  | $                            | 3,104  |  |                           | $ | 3,104  |                                         | 
|Senior Secured First Lien Debt  |  |                              | 12,141 |  |                           |   | 11,721 |                                         | 
|Senior Secured Second Lien Debt |  |                              | 7,131  |  |                           |   | 5,694  |                                         | 
|Senior Unsecured Debt           |  |                              | 19,116 |  |                           |   | 15,129 |                                         | 
|Senior Subordinated Debt        |  |                              | 5,034  |  |                           |   | 4,010  |                                         | 
|Equity Securities               |  |                              | 880    |  |                           |   | 874    |                                         | 
|Total                           |  | $                            | 47,406 |  |                           | $ | 40,532 |                                         | 



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



|                                |  | Investments atAmortized Cost |        |  | Investments atFairValue |   |        | Fair ValuePercentageof Total 
Portfolio | 
|------------------------------- |  | ---------------------------- | ------ |  | ----------------------- | - | ------ | --------------------------------------- | 
|Investments – Money Market      |  | $                            | 1,644  |  |                         | $ | 1,644  |                                         | 
|Senior Secured First Lien Debt  |  |                              | 4,475  |  |                         |   | 4,512  |                                         | 
|Senior Secured Second Lien Debt |  |                              | 5,601  |  |                         |   | 5,290  |                                         | 
|Senior Unsecured Debt           |  |                              | 7,962  |  |                         |   | 7,425  |                                         | 
|Senior Subordinated Debt        |  |                              | 5,731  |  |                         |   | 5,927  |                                         | 
|Total                           |  | $                            | 25,413 |  |                         | $ | 24,798 |                                         | 



Note 5.  Related Party Transactions



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.



As a business development
company, we are subject to certain regulatory restrictions in making our investments. For example, we generally are not permitted
to co-invest with certain entities affiliated with our Manager in transactions originated by our Manager or its affiliates unless
we obtain an exemptive order from the SEC or co-invest alongside our Manager or its affiliates in accordance with existing regulatory
guidance and our allocation policy. Under existing regulatory guidance, we are permitted to, and may co-invest in syndicated deals
and secondary loan market transactions where price is the only negotiated point.



We may seek exemptive
relief from the SEC to engage in co-investment transactions with our Manager and/or its affiliates. However, there can be no assurance
that we will obtain such exemptive relief, if requested. Even if we receive exemptive relief, neither our Manager nor its affiliates
are obligated to offer us the right to participate in any transactions originated by them. Prior to obtaining exemptive relief,
we may co-invest alongside our Manager or its affiliates only in accordance with existing regulatory guidance and our allocation
policy.



Investment Advisory Agreement



The Fund has entered
into an investment advisory agreement with the Manager to manage the Fund’s investment activities. Pursuant to the investment
advisory agreement, the Manager implements the Fund’s business strategy on a day-to-day basis and performs certain services
for us, subject to oversight by our Board of Directors. The Manager is responsible for, among other duties, determining investment
criteria, sourcing, analyzing and executing investment transactions, asset sales, financings and performing asset management duties.
Under the investment advisory agreement, the Manager is entitled to a base management and incentive fee as outlined in the investment
advisory agreement with the Fund. The base management fee is 2% of net assets below $100 million; 1.75% of net assets between $100
million and $250 million; and 1.5% of net assets over $250 million. For the years ended December 31, 2014, 2013 and 2012, the Fund
incurred $0.7 million, $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, 2014, 2013 and 2012, the Fund did not incur any
incentive fees related to net investment income or capital gains.



F-15







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



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



The Manager agreed
to assume and pay the Fund all amounts due the Fund from the prior manager as reflected in the Fund’s books and records as
of August 20, 2013, including any amounts due under the expense reimbursement agreement between the Fund and the prior manager.
The Fund agreed to pay the Manager any reimbursable organization and offering expenses incurred by 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, subject to the limitation that such organization and offering costs may only
be reimbursed to the extent of 1.5% of offering proceeds.



From time to
time, the Fund has paid directly certain expenses on behalf of our Prior Manager or our Manager for which the Prior Manager
or Manager is obligated to reimburse the Fund. As of December 31, 2014 and December 31, 2013, the unreimbursed amount
of organization and offering expenses was $0.2 million and $0.1 million, respectively, which amount is included in
“Due from related party” on the Fund’s balance sheet as of those dates.



Administration Agreement



Our Manager serves
as our administrator. Pursuant to an administration agreement, our Manager furnishes us with office facilities, equipment and clerical,
bookkeeping and record keeping services at such facilities. Under the administration agreement, our Manager also performs, or oversees
the performance of, our required administrative services, which include, among other things, transfer agency and other service
providers supervision and oversight, preparation and supervision of the financial records for which we are required to maintain
for SEC reporting, stockholder reporting and other Company needs, implementation and supervision of a robust compliance program
and oversight and administration of the quarterly share repurchase program. In addition, our Manager assists us in activities which
include, among other things, performance and supervision of investor relations, Company Board of Director communication and reporting,
determining and publishing our net asset value, overseeing the preparation and filing of our tax returns, the communication, printing
and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and other events such as distributions,
and the performance of administrative and professional services rendered to us by others. Under the administration agreement, we
are obligated to reimburse our Manager for our allocable portion of our Manager’s overhead in performing its obligations
under the administration agreement, including rent, the fees and expenses associated with overseeing and performing the compliance
functions and our allocable portion of the compensation of our chief financial officer, chief compliance officer and any administrative
support staff; however, to date, cost of the chief financial officer, fund administration accounting and the chief compliance officer
are charged directly to the Company. 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 also provides the reimbursement
to the Company by the Manager for the Manager’s share of the Directors and Officers insurance, which is paid by the Company
in full. 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.



Under the administration agreement,
our Manager will also provide on our behalf managerial assistance to portfolio companies that request such assistance. The amounts
of reimbursement to our Manager or services charged directly are captured in the Statement of Operations under “Administrative
Services”. During the years ended December 31, 2014, 2013 and 2012, the Fund reimbursed the Manager or was charged directly
for $0.1 million, $0.0 million and $0.05 million in administration expenses under the administration agreement, respectively.



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. The Manager sold these shares in 2014.



On July 10, 2012, the Fund had raised sufficient
proceeds to break escrow on its IPO and through December 31, 2014, the Fund has sold 5.5 million shares of common stock for gross
proceeds of $55.5 million including the purchases made by the Manager.





F-16







During the year ended December 31, 2014,
the Fund sold 2,394,942 shares of common stock in its offering for net proceeds of $22.5 million, including shares issued under
the distribution reinvestment plan. The Manager sold its shares during the year ended December 31, 2014.



Note 7.  Earnings (Loss) Per
Share



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



The following information sets forth the
computation of the weighted average basic and diluted net increase (decrease) in net assets per share from operations for the years
ended December 31, 2014, 2013 and 2012 (dollars in thousands except share and per share amounts):



|                                                                          |  | For the YearEndedDecember 31 |           |   | For the YearEndedDecember 31 |   |           | For the YearEndedDecember 31 | 
|------------------------------------------------------------------------- |  | ---------------------------- | --------- | - | ---------------------------- | - | --------- | ---------------------------- | 
|                                                                          |  | 2014                         |           |   | 2013                         |   |           | 2012                         | 
|                                                                          |  | (Restated)                   |           |   | (Restated)                   |   |           | (Restated)                   | 
|Basic and diluted:                                                        |  |                              |           |   |                              |   |           |                              | 
|Net increase (decrease) in net assets resulting from operations           |  | $                            | (5,274    | ) |                              | $ | 697       |                              | 
|Weighted average common shares outstanding                                |  |                              | 4,281,647 |   |                              |   | 2,150,019 |                              | 
|Net increase (decrease) in net assets resulting from operations per share |  | $                            | (1.23     | ) |                              | $ | 0.32      |                              | 



The Fund had
no potentially dilutive securities as of December 31, 2014, 2013 or 2012, resulting in the same number of shares for basic and
diluted.



Note 8. Tender Offer Program



We do not currently
intend to list our shares on any securities exchange and do not expect a public market for them to develop in the foreseeable future.
Therefore, shareholders should not expect to be able to sell their shares promptly or at a desired price. Beginning with fourth
calendar quarter of 2013 and on a quarterly basis thereafter, we intend to offer to repurchase shares of our common stock at a
price equal to 90% of our offering price on the date of repurchase. We currently intend to limit the number of shares to be repurchased
during any calendar year to 20% of the weighted average number of shares outstanding in the prior calendar year, or 5.0% in each
quarter, though the actual number of shares that we offer to repurchase may be less in light of the limitations noted above. We
will offer to repurchase such shares on each date of repurchase at a price equal to 90% of our offering price. For the year ended
December 31, 2014, the treasury shares were redeemed for $0.7 million less than the aggregate original purchase prices.



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



|For the Three Months
 Ended |  | Repurchase Date    |  | SharesRepurchased |        |  | Percent ofSharesTenderedthat wereRepurchased |  |     | RepurchasePrice PerShare |  |   | AggregateConsiderationforRepurchasedShares (‘000s) | 
|--------------------------- |  | ------------------ |  | ----------------- | ------ |  | -------------------------------------------- |  | --- | ------------------------ |  | - | -------------------------------------------------- | 
|December 13, 2013           |  | December 12, 2013  |  |                   | 548    |  |                                              |  | 100 | %                        |  | $ | 9.135                                              | 
|March 31, 2014              |  | March 14, 2014     |  |                   | 550    |  |                                              |  | 100 | %                        |  | $ | 9.135                                              | 
|June 30, 2014               |  | June 27, 2014      |  |                   | 34,025 |  |                                              |  | 100 | %                        |  | $ | 9.135                                              | 
|September 30, 2014          |  | September 30, 2014 |  |                   | 38,482 |  |                                              |  | 100 | %                        |  | $ | 9.000                                              | 
|December 31, 2014           |  | December 30, 2014  |  |                   | 6,061  |  |                                              |  | 100 | %                        |  | $ | 8.775                                              | 
|                            |  |                    |  |                   |        |  |                                              |  |     |                          |  |   |                                                    | 



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



Note 9.  Distributions



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



F-17







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,
2014, the Fund has accrued $0.2 million in stockholder distributions that were unpaid. All amounts with record date in December
2014 and paid in January 2015 have been accrued in the December 31, 2014 financial statements. As of December 31, 2013, the Fund
has accrued $0.1 million in stockholder distributions that were unpaid. All amounts with record dates in December 2013 and paid
in January 2014 have been accrued in the December 31, 2013 financial statements.



The following 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   |      | 
|January 1, 2014 - March 31, 2014      |  | $             | 0.18650 |  |            |  | 168   |             |  |  | 85        |  |  |       | 379   |  |         |  | 632   |      | 
|April 1, 2014 - June 30, 2014         |  | $             | 0.18650 |  |            |  | 372   |             |  |  | -         |  |  |       | 382   |  |         |  | 754   |      | 
|July 1, 2014 - September 30, 2014     |  | $             | 0.18467 |  |            |  | 135   |             |  |  | 29        |  |  |       | 644   |  |         |  | 808   |      | 
|Oct 1, 2014 - December 31, 2014       |  | $             | 0.18145 |  |            |  | 144   |             |  |  | 52        |  |  |       | 748   |  |         |  | 944   |      | 
|TOTAL                                 |  |               |         |  |            |  | 1,767 |             |  |  | 561       |  |  |       | 2,757 |  |         |  | 5,085 |      | 



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



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        | %
|January 1, 2014 - March 31, 2014     |  |           | 0.18650 |  |            |  | 27 | %           |  |  | 13        | %
|April 1, 2014 - June 30, 2014        |  |           | 0.18650 |  |            |  | 49 | %           |  |  | 0         | %
|July 1, 2014  - September 30, 2014   |  |           | 0.18467 |  |            |  | 17 | %           |  |  | 3         | %
|October 1, 2014 - December 31, 2014  |  |           | 0.18145 |  |            |  | 15 | %           |  |  | 6         | %



(*) 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, 2014, 2013 and 2012:



|                                         |  | Year ended            |       |  | Year ended            |  |       | Year ended            | 
|---------------------------------------- |  | --------------------- | ----- |  | --------------------- |  | ----- | --------------------- | 
|Source of Distributions:                 |  | December
    31, 2014 |       |  | December
    31, 2013 |  |       | December
    31, 2012 | 
|                                         |  | (Restated)            |       |  | (Restated)            |  |       | (Restated)            | 
|Distributions from net investment income |  | $                     | 819   |  |                       |  | 26.1  | %                     | 
|Distributions from realized gains        |  |                       | 166   |  |                       |  | 5.3   | %                     | 
|Distributions from paid In capital       |  |                       | 2,153 |  |                       |  | 68.6  | %                     | 
|Total                                    |  | $                     | 3,138 |  |                       |  | 100.0 | %                     | 



F-18







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:



|                |  | 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 |   
|--------------- |  | ------------------ | --- |  | ------------------------------------------------- | - | ----- | ---------------------------------------------------------------------- |  |  | --------------------------------------------------------------- | - |  | ---------------------------------------------------------------- | --
|2014 (Restated) |  | $                  | 352 |  |                                                   | $ | 1,171 |                                                                        |  |  | 37                                                              | % |  |                                                                  | 5 
|2013 (Restated) |  | $                  | 322 |  |                                                   | $ | 1,120 |                                                                        |  |  | 66                                                              | % |  |                                                                  | 23
|2012 (Restated) |  | $                  | 142 |  |                                                   | $ | 292   |                                                                        |  |  | 100                                                             | % |  |                                                                  | 0 



F-19







Note 10.  Financial Highlights



The following is a schedule of financial
highlights for the years ended December 31, 2014, 2013 and 2012:



|                                                                     |  | For
the yearended December 31,2014 |           |    | For the year
 endedDecember 31,2013 |   |           | For the year
 endedDecember 31,2012 | 
|-------------------------------------------------------------------- |  | ---------------------------------- | --------- | -- | ----------------------------------- | - | --------- | ----------------------------------- | 
|                                                                     |  | (Restated)                         |           |    | (Restated)                          |   |           | (Restated)                          | 
|Per share data:                                                      |  |                                    |           |    |                                     |   |           |                                     | 
|Net asset value, beginning of period                                 |  | $                                  | 8.70      |    |                                     | $ | 8.77      |                                     | 
|                                                                     |  |                                    |           |    |                                     |   |           |                                     | 
|Results of operations (1)                                            |  |                                    |           |    |                                     |   |           |                                     | 
|Net investment income                                                |  |                                    | 0.19      |    |                                     |   | 0.37      |                                     | 
|Net realized gain on investments                                     |  |                                    | 0.04      |    |                                     |   | 0.18      |                                     | 
|Net unrealized loss on investments                                   |  |                                    | (1.46     | )  |                                     |   | (0.23     | )                                   | 
|Net increase(decrease) in net assets resulting from operations       |  |                                    | (1.23     | )  |                                     |   | 0.32      |                                     | 
|                                                                     |  |                                    |           |    |                                     |   |           |                                     | 
|Stockholder distributions (2)                                        |  |                                    |           |    |                                     |   |           |                                     | 
|Distributions from net investment income                             |  |                                    | (0.19     | )  |                                     |   | (0.37     | )                                   | 
|Distributions from realized gains                                    |  |                                    | (0.04     | )  |                                     |   | (0.18     | )                                   | 
|Distributions from capital                                           |  |                                    | (0.50     | )  |                                     |   | (0.24     | )                                   | 
|Net decrease in net assets resulting from stockholder distributions  |  |                                    | (0.73     | )  |                                     |   | (0.79     | )                                   | 
|                                                                     |  |                                    |           |    |                                     |   |           |                                     | 
|Capital share transactions                                           |  |                                    |           |    |                                     |   |           |                                     | 
|Impact from issuance of common stock (3)                             |  |                                    | 0.60      |    |                                     |   | 0.40      |                                     | 
|Net increase in net assets resulting from capital share transactions |  |                                    | 0.60      |    |                                     |   | 0.40      |                                     | 
|Net asset value, end of period                                       |  | $                                  | 7.34      |    |                                     | $ | 8.70      |                                     | 
|Shares outstanding at end of period                                  |  |                                    | 5,546,292 |    |                                     |   | 3,151,376 |                                     | 
|Total return (5)                                                     |  |                                    | (8.88     | )% |                                     |   | 7.72      | %                                   | 
|Ratio/Supplemental data:                                             |  |                                    |           |    |                                     |   |           |                                     | 
|Net assets, end of period (in thousands)                             |  | $                                  | 40,688    |    |                                     | $ | 27,424    |                                     | 
|Average net assets (in thousands)                                    |  | $                                  | 36,686    |    |                                     | $ | 21,372    |                                     | 
|Ratio of net investment income to average net assets (4)(7)          |  |                                    | 2.23      | %  |                                     |   | 3.73      | %                                   | 
|Ratio of operating expenses to average net assets (4)(7)             |  |                                    | 6.65      | %  |                                     |   | 4.03      | %                                   | 
|Ratio of expenses reimbursed to average net assets (7)               |  |                                    | -         |    |                                     |   | 3.63      | %                                   | 
|Portfolio turnover ratio (6)                                         |  |                                    | 36.08     | %  |                                     |   | 59.80     | %                                   | 

_________________________

| | (1) | The
per share amounts were derived by using the weighted average shares outstanding during the period. There was no expense waiver
and reimbursement for the year ended December 31, 2014. 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.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The
per share data for distributions reflects the actual amount of distributions declared per share during the period.
| | --- | ----------------------------------------------------------------------------------------------------------------------



| | (3) | The
issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of
shares of common stock in the Fund's continuous offering.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The
ratios are after giving effect to amounts reimbursed by the Manager under an expense reimbursement agreement. See “Note
5 – Related Party Transactions.” For the year ended December 31, 2014 there was no expense waiver and reimbursement.
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.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Total
return is calculated assuming a purchase of shares at the current net asset value on the first day and a sale at the current net
asset value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be
reinvested at prices obtained under the DRIP. For the year ended December 31, 2014 there was no expense reimbursement. 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%.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-20







| | (6) | Portfolio
turnover rate is calculated using the lesser of year-to-date sales or purchases over the average of the invested assets at fair
value. Not annualized.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Ratios
are annualized based on average net assets using current and prior 3 quarters net assets.
| | --- | ------------------------------------------------------------------------------------------------



Note 11.  Selected Quarterly Data (Unaudited)



The following is the quarterly results of
operations for the year ended December 31, 2014, 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 31,2014 |          
|                                                     |  | (Restated)       |          
|Investment income                                    |  | $                | 855      
|Operating expenses                                   |  |                  |          
|Total Expenses                                       |  |                  | 711      
|Less: Waiver of incentive fees                       |  |                  | -        
|Less: Expense reimbursements                         |  |                  | -        
|Net expenses                                         |  |                  | 711      
|Net investment income                                |  |                  | 144      
|Realized and unrealized gain (loss), net             |  |                  | (2,551   
|Net decrease in net assets resulting from operations |  | $                | (2,407   
|Per share information - basic and diluted            |  |                  |          
|Net investment income                                |  | $                | 0.03     
|Net decrease in net assets resulting from operations |  | $                | (0.46    
|Weighted average shares outstanding                  |  |                  | 5,227,766



|                                                                |  | 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                                           |  |                  | 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



F-21







|                                                                |  | 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 12.  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, 2015 to July 16, 2015, the
Fund issued 0.7 million shares of common stock for gross proceeds of $6.4 million. The proceeds were substantially invested in
new debt securities.



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 $139, 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-22







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



None.



ITEM 9A. CONTROLS AND PROCEDURES



Disclosure Controls



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 U.S. 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, 2014.



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, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting. However, in 2015, we determined that a deficiency in internal control over financial reporting existed relating to the
determination of offering expenses that should have been borne by our Fund manager instead of us, and reimbursed to our manager
at the rate of 1.5% of gross offering proceeds in accordance with our investment management agreement with the Fund manager, and
that the deficiency existed during the period covered by this report. In response, in 2015 we implemented additional controls whereby
officers will map out financial statement line items to the relevant portions of the agreements with our Fund manager to ensure
compliance and proper accounting for amounts due thereunder.



ITEM 9B. OTHER INFORMATION



None.



47







Part III



We will file a definitive Proxy Statement
for our 2015 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/A. 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 2015 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 2015 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 2015 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 2015 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 2015 Annual Meeting of Stockholders, to be filed
with the SEC within 120 days following the end of our fiscal year.



48







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-2 
|Statements of Assets and Liabilities as of December 31, 2014 and 2013                    | F-3 
|Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012            | F-4 
|Statements of Changes in Net Assets for the Years Ended December 31, 2014, 2013 and 2012 | F-5 
|Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012            | F-6 
|Schedules of Investments as of December 31, 2014 and 2013                                | F-7 
|Notes to Financial Statements                                                            | F-9 



| | 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, 2014 (and are numbered in accordance with Item 601 of Regulation S-K):



|ExhibitNo. |  | 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) to Amendment 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.
|- | ---------------



49







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                                       
|                    |                                          
|                    |                                          
|                    |                                          
|                    |                                          



50