OFS Capital(US:OFS)2025-07-31 21:33PART I. FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's discussion and analysis for the reporting period Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements of OFS Capital Corporation and its subsidiaries for the periods ended June 30, 2025, and December 31, 2024, including statements of assets and liabilities, operations, changes in net assets, cash flows, and schedules of investments, along with detailed notes Consolidated Statements of Assets and Liabilities This statement details the company's financial position, including investments, assets, liabilities, and net assets, as of specific reporting dates | Metric | June 30, 2025 (thousands) | December 31, 2024 (thousands) | | :--------------------------------- | :-------------------------- | :---------------------------- | | Total investments, at fair value | $382,748 | $409,665 | | Total assets | $395,442 | $428,123 | | Total liabilities | $249,246 | $255,898 | | Total net assets | $146,196 | $172,225 | | Net asset value per share | $10.91 | $12.85 | - Total investments at fair value decreased by $26.9 million from December 31, 2024, to June 30, 2025, while total net assets decreased by $26.0 million, and net asset value per share declined by $1.9414 Consolidated Statements of Operations This statement presents the company's revenues, expenses, and net income or loss from operations over specific periods | Metric (thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total investment income | $10,476 | $11,165 | $20,771 | $25,398 | | Total expenses | $7,193 | $7,728 | $14,023 | $16,365 | | Net investment income | $3,283 | $3,437 | $6,748 | $9,033 | | Net gain (loss) on investments | $(12,914) | $6,891 | $(23,666) | $(7,754) | | Net increase (decrease) in net assets | $(9,631) | $10,328 | $(16,918) | $1,279 | | Net investment income per share | $0.25 | $0.26 | $0.50 | $0.67 | | Net increase (decrease) per share | $(0.72) | $0.77 | $(1.26) | $0.10 | - For the three months ended June 30, 2025, net investment income decreased slightly year-over-year, and the company reported a significant net loss on investments, leading to a net decrease in net assets from operations15 - For the six months ended June 30, 2025, total investment income and net investment income decreased compared to the prior year, with a substantial net loss on investments contributing to a significant net decrease in net assets15 Consolidated Statements of Changes in Net Assets This statement outlines the changes in the company's net assets, including income, losses, and distributions, over specific periods | Metric (thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | | Balances at December 31 | $172,225 | $162,004 | | Net investment income | $6,748 | $9,033 | | Net realized loss on investments | $(6,778) | $(3,506) | | Net unrealized depreciation on investments | $(16,888) | $(4,248) | | Distributions declared | $(9,111) | $(9,111) | | Net decrease for the period | $(26,029) | $(7,832) | | Balances at June 30 | $146,196 | $154,172 | - The company experienced a net decrease in net assets of $26.0 million for the six months ended June 30, 2025, primarily driven by net unrealized depreciation on investments and distributions, compared to a $7.8 million decrease in the prior year17 Consolidated Statements of Cash Flows This statement reports the cash inflows and outflows from operating, investing, and financing activities over specific periods | Metric (thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $18,231 | $22,662 | | Net cash used in financing activities | $(14,061) | $(62,431) | | Net increase (decrease) in cash and cash equivalents | $4,170 | $(39,769) | | Cash and cash equivalents, end of period | $10,238 | $5,580 | - Net cash provided by operating activities decreased by $4.4 million for the six months ended June 30, 2025, compared to the prior year19 - Net cash used in financing activities significantly decreased from $62.4 million in 2024 to $14.1 million in 2025, primarily due to lower repayments of SBA debentures19 - Overall, cash and cash equivalents increased by $4.2 million in 2025, reversing a $39.8 million decrease in 202419 Consolidated Schedules of Investments This schedule provides a detailed breakdown of the company's investment portfolio by type and fair value | Investment Type | June 30, 2025 Fair Value (thousands) | December 31, 2024 Fair Value (thousands) | | :--------------------------------- | :----------------------------------- | :------------------------------------- | | Non-control/Non-affiliate Investments | $287,265 | $305,242 | | Affiliate Investments | $95,483 | $104,423 | | Total Investments | $382,748 | $409,665 | - As of June 30, 2025, the company's total investments at fair value decreased by $26.9 million compared to December 31, 2024142844 - Non-control/non-affiliate investments decreased by $17.9 million, and affiliate investments decreased by $8.9 million142844 Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements Note 1. Organization This note describes the company's structure, business objectives, and regulatory status as a Business Development Company (BDC) - OFS Capital Corporation is an externally managed, closed-end, non-diversified management investment company regulated as a BDC, aiming to provide stockholders with current income and capital appreciation primarily through debt and equity investments50515253545556 - It operates through subsidiaries like OFSCC-FS (for senior secured loans), and previously SBIC I LP (license surrendered April 2024), and OFSCC-MB (for equity investments taxed as pass-through entities)50515253545556 Note 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and estimates used in preparing the financial statements - The financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q requirements5760616263 - Key policies include revenue recognition and fair value estimates, with management making significant judgments5760616263 - The company's cash and cash equivalents are held with high credit quality institutions to mitigate credit risk, though balances may exceed FDIC insured limits5760616263 Note 3. Related Party Transactions This note details transactions and relationships with affiliated entities, including management and incentive fees - OFS Advisor manages the company's operations and investments, receiving a base management fee (1.75% annually, reduced to 1.00% for OFSCC-FS assets) and an incentive fee (20.0% of pre-incentive fee net investment income above a 2.0% hurdle rate, plus a capital gains fee)6466676870737576 - OFS Services provides administrative services6466676870737576 - Affiliates of OFS Advisor held approximately 22.6% of the company's common stock as of June 30, 20256466676870737576 Note 4. Investments This note provides a detailed breakdown of the investment portfolio, including types, fair values, and industry concentrations | Investment Type | June 30, 2025 Fair Value (thousands) | December 31, 2024 Fair Value (thousands) | | :--------------------------------- | :----------------------------------- | :------------------------------------- | | First lien debt investments | $180,072 | $189,874 | | Second lien debt investments | $31,257 | $34,331 | | Preferred equity | $10,075 | $12,248 | | Common equity, warrants and other | $88,778 | $96,337 | | Structured Finance Securities | $72,566 | $76,875 | | Total investments | $382,748 | $409,665 | - As of June 30, 2025, the portfolio comprised 35 debt investments (85% first lien, 15% second lien), 15 equity investments, and 15 Structured Finance Securities777984 - The largest industry concentrations by fair value were Manufacturing (28.5%), Health Care and Social Assistance (16.5%), and Real Estate and Rental and Leasing (4.9%)777984 - The common equity investment in Pfanstiehl Holdings, Inc. represented 56.8% of total net assets777984 Non-Accrual Loans | Non-Accrual Loans (thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Amortized Cost | $39,111 | $39,124 | | Fair Value | $15,159 | $20,803 | Note 5. Fair Value of Financial Instruments This note explains the methodologies and inputs used to determine the fair value of financial instruments, particularly Level 3 assets - The company's investments are carried at fair value, primarily categorized as Level 3 (unobservable inputs) under GAAP, with a lesser extent in Level 2 (observable inputs other than quoted prices)868788 - Fair value determinations are performed by OFS Advisor, as valuation designee, with assistance from third-party valuation firms868788 - Transfers from Level 3 to Level 2 for debt investments totaled $3.6 million for the six months ended June 30, 2025868788 Level 3 Fair Value Assets | Security Type (Level 3 Fair Value, thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------------------------- | :------------ | :---------------- | | Debt investments | $193,823 | $202,368 | | Equity investments | $98,853 | $108,585 | | Structured Finance Securities | $72,566 | $76,875 | | Total Level 3 assets | $365,242 | $387,828 | Debt Carrying and Fair Value | Debt (thousands) | June 30, 2025 Carrying Value | June 30, 2025 Fair Value | December 31, 2024 Carrying Value | December 31, 2024 Fair Value | | :--------------------------------- | :--------------------------- | :----------------------- | :------------------------------- | :--------------------------- | | Revolving lines of credit | $63,400 | $63,400 | $68,350 | $68,350 | | Unsecured Notes | $178,801 | $173,967 | $178,312 | $171,024 | | Total debt | $242,201 | $237,367 | $246,662 | $239,374 | Note 6. Commitments and Contingencies This note discloses the company's unfunded commitments, credit facilities, and potential legal liabilities - As of June 30, 2025, the company had $16.1 million in unfunded commitments to ten portfolio companies106107 - It maintains $10.2 million in cash and cash equivalents, plus unused commitments of $25.0 million under its Banc of California Credit Facility and $86.6 million under its BNP Facility, to cover these obligations106107 - The company is involved in normal course legal proceedings but does not expect a material adverse effect on its financial position106107 Note 7. Borrowings This note details the company's outstanding debt, credit facilities, and their terms and conditions - SBIC I LP fully repaid its $31.9 million SBA debentures in March 2024 and surrendered its license110113116118119 - The BNP Facility, with $63.4 million outstanding as of June 30, 2025, had its reinvestment period extended to August 31, 2025, and matures on June 20, 2027110113116118119 - The Banc of California Credit Facility had no outstanding debt as of June 30, 2025, with $25.0 million unused commitment110113116118119 - Unsecured Notes totaling $180.0 million were outstanding, with $125.0 million due February 2026 and $55.0 million due October 2028110113116118119 Average Borrowings and Interest Rates | Borrowing Type | Average Outstanding Balance (thousands) - 6 Months Ended June 30, 2025 | Effective Interest Rate - 6 Months Ended June 30, 2025 | | :--------------------------------- | :------------------------------------------------------- | :------------------------------------- | | BNP Facility | $66,439 | 8.31% | | Banc of California Credit Facility | $2,057 | n/m | | Unsecured Notes | $180,000 | 5.35% | | Total Average Borrowings | $248,496 | 6.25% | Note 8. Financial Highlights This note presents key financial performance metrics and ratios on a per-share basis for various periods | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net asset value per share (end) | $10.91 | $11.51 | $10.91 | $11.51 | | Net investment income per share | $0.25 | $0.26 | $0.50 | $0.67 | | Total income (loss) from operations per share | $(0.72) | $0.77 | $(1.26) | $0.10 | | Distributions declared per share | $0.34 | $0.34 | $0.68 | $0.68 | | Total return based on market value | (5.6)% | (7.2)% | 12.7% | (18.6)% | | Total return based on net asset value | (5.3)% | 7.9% | (8.5)% | 2.2% | | Ratio of total expenses to average net assets | 18.8% | 20.4% | 17.6% | 21.1% | | Ratio of net investment income to average net assets | 8.6% | 9.1% | 8.5% | 11.7% | - For the three months ended June 30, 2025, NAV per share decreased, and the company reported a loss from operations per share125 - For the six months ended June 30, 2025, total return based on market value was positive, but total return based on NAV was negative, and net investment income per share declined compared to the prior year125 Note 9. Capital Transactions This note describes activities related to the company's capital, including distributions and share repurchase programs - The company declared quarterly distributions of $0.34 per share for the six months ended June 30, 2025 and 2024, totaling $9.1 million each period128129130131 - These distributions were satisfied by purchasing shares on the open market through the DRIP plan128129130131 - The Stock Repurchase Program, authorizing up to $10.0 million in common stock repurchases, was extended to May 22, 2026, with $9.6 million remaining as of June 30, 2025; no shares were repurchased during the six months ended June 30, 2025128129130131 Note 10. Consolidated Schedule of Investments In and Advances To Affiliates This schedule provides details on investments in and advances to affiliated entities, including fair value changes | Affiliate Investment (thousands) | December 31, 2024 Fair Value | June 30, 2025 Fair Value | Net Change in Unrealized Appreciation/(Depreciation) | | :--------------------------------- | :--------------------------- | :----------------------- | :--------------------------------------------------- | | Contract Datascan Holdings, Inc. | $12,331 | $9,714 | $(3,200) | | DRS Imaging Services, LLC | $1,190 | $1,922 | $732 | | Pfanstiehl Holdings, Inc. | $89,298 | $82,993 | $(6,305) | | TalentSmart Holdings, LLC | $1,604 | $854 | $(750) | | Total Affiliate Investments | $104,423 | $95,483 | $(9,523) | - Total affiliate investments decreased by $8.9 million in fair value from December 31, 2024, to June 30, 2025, primarily due to net unrealized depreciation of $9.5 million133 - Pfanstiehl Holdings, Inc. experienced the largest unrealized depreciation of $6.3 million133 Note 11. Subsequent Events This note discloses significant events that occurred after the reporting period but before the financial statements were issued - Subsequent to June 30, 2025, the company initiated redemptions of $94.0 million of its Unsecured Notes Due February 2026138139140 - It also closed a public offering of $69.0 million aggregate principal amount of 7.50% Unsecured Notes Due July 2028, generating approximately $67.3 million in net proceeds138139140 - Additionally, the Board declared a distribution of $0.34 per share for the third quarter of 2025138139140 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and liquidity for the periods ended June 30, 2025, and March 31, 2025, with comparisons to prior periods. It covers key performance metrics, portfolio composition, investment activity, risk monitoring, and recent developments Overview This section provides a high-level summary of the company's financial performance, key metrics, and significant events for the period | Metric | June 30, 2025 | March 31, 2025 | | :--------------------------------- | :------------ | :------------- | | Net asset value per share | $10.91 | $11.97 | | Net investment income per share (3 months) | $0.25 | $0.26 | | Net increase (decrease) in net assets per share (3 months) | $(0.72) | $(0.54) | | Distributions paid per share (3 months) | $0.34 | $0.34 | - NAV per common share decreased to $10.91 at June 30, 2025, from $11.97 at March 31, 2025, due to a net loss on investments of $0.97 per share and distributions exceeding net investment income142143145 - Total investment income increased to $10.5 million from $10.3 million in the prior quarter, mainly from non-recurring fee income142143145 - A net loss on investments of $12.9 million was recognized, primarily from unrealized depreciation on Pfanstiehl Holdings, Inc. and realized losses on Structured Finance Securities142143145 - As of June 30, 2025, the asset coverage ratio was 160%, exceeding the 150% minimum, and the company had $25.0 million and $86.6 million in unused commitments under its Banc of California Credit Facility and BNP Facility, respectively146 - Unfunded commitments totaled $16.1 million146 Critical Accounting Policies and Significant Estimates This section discusses the accounting policies and estimates that require significant management judgment and their potential impact on financial reporting - The company's critical accounting policies and estimates relate to revenue recognition and fair value estimates, which involve significant management judgment due to the use of unobservable inputs for Level 3 investments148149 - A hypothetical range analysis shows that fair value measures could vary by approximately $15.7 million (low-end) to $17.4 million (high-end) from the reported fair value of $382.7 million as of June 30, 2025148149 Related Party Transactions This section details the company's relationships and transactions with its investment advisor and other affiliated entities - The company has business relationships with OFS Advisor (investment advisory), OFS Services (administrative services), and OFSAM (license agreement for 'OFS' name)150151152153 - OFS Advisor's base management fee for OFSCC-FS Assets is reduced to 1.00% annually150151152153 - The company operates under an SEC order allowing co-investments with affiliated funds, subject to independent director approval to ensure fairness and consistency with investment objectives150151152153 Portfolio Composition and Investment Activity This section details the composition of the investment portfolio, including debt, equity, and structured finance securities, along with investment activity and risk monitoring classifications Portfolio Composition This section details the breakdown of the investment portfolio by type, issuer, and concentration | Issuer Name | Type | Fair Value (thousands) | % of Total Portfolio, at Fair Value | % of Net Assets, at Fair Value | | :--------------------------------- | :----- | :--------------------- | :---------------------------------- | :----------------------------- | | Pfanstiehl Holdings, Inc. | Equity | $82,993 | 21.7% | 56.8% | | Kreg LLC | Debt | $17,522 | 4.6% | 12.0% | | Inergex Holdings, LLC | Debt | $17,044 | 4.5% | 11.8% | | SS Acquisition, LLC | Debt | $16,674 | 4.4% | 11.4% | | Honor HN Buyer Inc. | Debt | $14,969 | 3.9% | 10.3% | | Tolemar Acquisition, Inc. | Debt | $13,067 | 3.4% | 8.9% | | One GI LLC | Debt | $11,900 | 3.1% | 8.1% | | Boca Home Care Holdings, Inc. | Debt and Equity | $10,223 | 2.7% | 7.0% | | Contract Datascan Holdings, Inc. | Equity | $9,714 | 2.5% | 6.6% | | Canyon CLO 2019-1, Ltd. | Structured Finance Security | $9,540 | 2.5% | 6.5% | | Total Top 10 | | $203,646 | 53.3% | 139.4% | - As of June 30, 2025, the debt investment portfolio totaled $211.3 million across 35 companies (85% first lien, 15% second lien), with $98.9 million in equity investments and $72.6 million in Structured Finance Securities156158159 - Pfanstiehl Holdings, Inc. (equity) alone constituted 21.7% of the total portfolio and 56.8% of net assets, with $82.8 million in unrealized appreciation156158159 - Structured Finance Securities managed by a single adviser represented 4.6% of the total portfolio and 12.1% of net assets156158159 Portfolio Yields This section presents the weighted-average income and realized yields on the company's debt and interest-bearing investments | Yield Metric | 3 Months Ended June 30, 2025 | 3 Months Ended March 31, 2025 | | :--------------------------------- | :--------------------------- | :---------------------------- | | Weighted-average performing income yield: Debt investments | 12.5% | 12.3% | | Weighted-average performing income yield: Structured Finance Securities | 16.4% | 16.3% | | Weighted-average performing income yield: Interest-bearing investments | 13.6% | 13.4% | | Weighted-average realized yield: Interest-bearing investments | 11.9% | 11.6% | - For the three months ended June 30, 2025, the weighted-average performing income yield on interest-bearing investments increased to 13.6% from 13.4% in the prior quarter, primarily due to a 21 basis point increase in earned yields on debt investments160 - As of June 30, 2025, 90% of the total loan portfolio, at fair value, consisted of variable rate investments indexed to SOFR162 Portfolio Company Investments This section describes the composition of investments in portfolio companies, including debt and equity, and industry concentrations | Investment Type | June 30, 2025 Fair Value (thousands) | December 31, 2024 Fair Value (thousands) | | :--------------------------------- | :----------------------------------- | :------------------------------------- | | First lien debt investments | $180,072 | $189,874 | | Second lien debt investments | $31,257 | $34,331 | | Preferred equity | $10,075 | $12,248 | | Common equity, warrants and other | $88,778 | $96,337 | | Total Portfolio Company Investments | $310,182 | $332,790 | - As of June 30, 2025, 100% of the loan portfolio and 55% of the total portfolio consisted of first and second lien loans by fair value164 - The top three industries for Portfolio Company Investments were Manufacturing (35.3%), Health Care and Social Assistance (20.3%), and Administrative and Support and Waste Management and Remediation Services (6.8%)165166 Structured Finance Securities This section details the company's investments in structured finance securities, including their fair value and performance | Investment Type | June 30, 2025 Fair Value (thousands) | December 31, 2024 Fair Value (thousands) | | :--------------------------------- | :----------------------------------- | :------------------------------------- | | Subordinated notes | $61,196 | $64,301 | | Mezzanine debt | $11,370 | $12,574 | | Total Structured Finance Securities | $72,566 | $76,875 | - As of June 30, 2025, non-performing Structured Finance Securities had an amortized cost of $2.4 million and a fair value of $0.5 million167168 - During the six months ended June 30, 2025, the company sold Structured Finance Securities for $8.5 million, resulting in a net realized loss of $5.7 million167168 Investment Activity This section summarizes the company's investment purchases, originations, and proceeds from sales or repayments | Investment Activity (thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended March 31, 2025 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :---------------------------- | :--------------------------- | :--------------------------- | | Total investment purchases and originations | $12,507 | $10,411 | $22,918 | $12,347 | | Total proceeds from principal payments, sales or redemptions, and distributions received | $23,581 | $9,931 | $33,512 | $32,695 | - Total investment purchases and originations for the six months ended June 30, 2025, increased to $22.9 million from $12.3 million in the prior year169 - Total proceeds from principal payments, sales, and distributions also increased to $33.5 million from $32.7 million year-over-year169 Risk Monitoring This section outlines the company's internal risk categorization for debt investments and their fair values | Risk Category (Debt Investments, Fair Value, thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------------------------ | :------------ | :---------------- | | 3 (Average) | $148,786 | $157,941 | | 4 (Special Mention) | $52,525 | $57,003 | | 5 (Substandard) | $8,341 | $7,159 | | 6 (Doubtful) | $1,677 | $2,102 | | Total Debt Investments | $211,329 | $224,205 | - As of June 30, 2025, 70.4% of debt investments were categorized as 'Average Risk' (Category 3), and 24.9% as 'Special Mention' (Category 4)170 - The fair value of 'Substandard' (Category 5) debt investments increased from $7.2 million to $8.3 million, while 'Doubtful' (Category 6) decreased from $2.1 million to $1.7 million170 Non-Accrual Loans This section provides details on loans that are not currently accruing interest, including their fair value | Non-Accrual Loans (thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | First lien debt | $14,993 | $18,785 | | Second lien debt | $166 | $2,018 | | Total Fair Value | $15,159 | $20,803 | - As of June 30, 2025, the fair value of non-accrual loans decreased to $15.2 million from $20.8 million at December 31, 2024172 - No new loans were placed on non-accrual status during the three or six months ended June 30, 2025172 Results of Operations This section analyzes the company's investment income, expenses, and net realized and unrealized gains/losses on investments for the three and six months ended June 30, 2025, compared to prior periods Investment Income This section analyzes the components of the company's total investment income, including interest, dividends, and fees | Investment Income (thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended March 31, 2025 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :---------------------------- | :--------------------------- | :--------------------------- | | Total interest income | $10,019 | $9,968 | $19,987 | $22,247 | | Total dividend income | $307 | $298 | $605 | $2,991 | | Total fee income | $150 | $29 | $179 | $160 | | Total investment income | $10,476 | $10,295 | $20,771 | $25,398 | - For the three months ended June 30, 2025, total investment income increased to $10.5 million from $10.3 million in the prior quarter, primarily due to a $0.1 million increase in non-recurring fee income179180182 - For the six months ended June 30, 2025, total investment income decreased by $4.6 million year-over-year, mainly due to a $2.4 million decrease in dividend income and a $2.3 million decrease in interest income179180182 Expenses This section details the company's operating expenses, including interest expense, management fees, and incentive fees | Expenses (thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended March 31, 2025 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :---------------------------- | :--------------------------- | :--------------------------- | | Interest expense | $3,842 | $3,858 | $7,700 | $8,689 | | Base management fee | $1,479 | $1,549 | $3,028 | $3,001 | | Income Incentive Fee | $821 | $330 | $1,151 | $2,258 | | Total expenses | $7,193 | $6,830 | $14,023 | $16,365 | - For the three months ended June 30, 2025, Income Incentive Fees increased by $0.5 million compared to the prior quarter due to higher net investment income return on net assets183184 - For the six months ended June 30, 2025, interest expense decreased by $1.0 million year-over-year, primarily due to a reduction in the average outstanding debt balance183184 Net realized and unrealized gain (loss) on investments This section analyzes the net realized and unrealized gains or losses from the company's investment portfolio | Net Gain (Loss) on Investments (thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended March 31, 2025 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------------- | :--------------------------- | :---------------------------- | :--------------------------- | :--------------------------- | | Debt investments | $(2,204) | $(8,128) | $(10,332) | $(4,331) | | Equity investments | $(9,118) | $(1,197) | $(10,315) | $(5,335) | | Structured Finance Securities | $(1,739) | $(1,526) | $(3,265) | $2,113 | | Total net loss on investments | $(12,914) | $(10,752) | $(23,666) | $(7,754) | - For the three months ended June 30, 2025, a net loss of $12.9 million was recognized, primarily due to $7.8 million in net unrealized depreciation on Pfanstiehl Holdings, Inc. common equity and $2.0 million on debt investments185187 - For the six months ended June 30, 2025, the net loss on investments was $23.7 million, comprising $17.1 million in net unrealized depreciation (including $6.3 million on Pfanstiehl Holdings, Inc. and $5.6 million on non-accrual debt) and $6.8 million in net realized losses185187 Liquidity and Capital Resources This section discusses the company's cash position, credit facilities, unfunded commitments, and asset coverage ratio, outlining its sources and uses of cash and strategies for funding investments and managing debt Sources and Uses of Cash This section details the cash inflows and outflows from operating and financing activities | Cash Flow (thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | | Cash from net investment income | $6,036 | $6,091 | | Net repayments and sales of portfolio investments | $12,195 | $16,472 | | Net cash provided by operating activities | $18,231 | $22,563 | | Net cash used in financing activities | $(14,061) | $(62,431) | | Net increase (decrease) in cash and cash equivalents | $4,170 | $(39,868) | - Net cash provided by operating activities decreased to $18.2 million for the six months ended June 30, 2025, from $22.6 million in the prior year193194195 - Net repayments and sales of portfolio investments were $12.2 million, down from $16.5 million193194195 - Net cash used in financing activities significantly decreased to $14.1 million from $62.4 million, primarily due to the repayment of SBA debentures in the prior year193194195 Borrowings This section provides an overview of the company's outstanding debt, credit facilities, and their associated terms - As of June 30, 2025, the company had $243.4 million in outstanding debt with a weighted-average effective interest rate of 6.13%196197198200201203206207 - The SBA debentures were fully repaid in March 2024196197198200201203206207 - The Banc of California Credit Facility had no outstanding debt but $25.0 million in unused commitment196197198200201203206207 - Unsecured Notes totaled $180.0 million, with $125.0 million due February 2026 and $55.0 million due October 2028196197198200201203206207 - The BNP Facility had $63.4 million drawn and $86.6 million unused commitment, with its reinvestment period extended to August 31, 2025196197198200201203206207 Other Liquidity Matters This section discusses the company's strategies for funding growth, regulatory requirements, and share repurchase program - The company plans to fund investment growth through current borrowings, equity offerings, and senior securities, but cannot guarantee favorable terms209210211212213 - As a BDC, at least 70% of assets must be 'qualifying assets'; as of June 30, 2025, approximately 80% were qualifying assets209210211212213 - The minimum required asset coverage ratio decreased from 200% to 150% effective May 3, 2019209210211212213 - The Stock Repurchase Program was extended to May 22, 2026, with $9.6 million remaining209210211212213 Contractual Obligations and Off-Balance Sheet Arrangements This section outlines the company's future payment obligations, unfunded commitments, and off-balance sheet financial instruments - As of June 30, 2025, the company had $10.2 million in cash and $111.6 million in unused credit facility commitments to meet $16.1 million in unfunded investment commitments216217218219220 - The BNP Facility's reinvestment period was extended to August 31, 2025, and its maturity is June 20, 2027216217218219220 - The company's $180.0 million Unsecured Notes include $125.0 million maturing in February 2026, which will be partially refinanced by new $69.0 million Unsecured Notes Due July 2028216217218219220 - Approximately 74% of outstanding debt carries fixed interest rates and is unsecured216217218219220 - Off-balance sheet arrangements include the Investment Advisory Agreement with OFS Advisor and the Administration Agreement with OFS Services221222 - The company may enter into financial instruments with off-balance sheet risk for portfolio companies but believes it has sufficient liquidity to support existing commitments221222 Distributions This section details the company's distribution policy, tax treatment requirements, and recent distribution declarations - To maintain RIC tax treatment, the company must distribute at least 90% of its Investment Company Taxable Income (ICTI) annually223224 - It aims to distribute quarterly amounts not less than 90% of taxable quarterly income, with potential special dividends223224 - A portion of 2025 distributions is estimated to be a tax return of capital223224 - Distributions from OFSCC-FS to the Parent are restricted by the BNP Facility terms223224 Recent Developments This section highlights significant events that occurred after the reporting period, including debt redemptions and new offerings - On July 11 and July 22, 2025, the company issued notices to redeem an aggregate of $94.0 million of its Unsecured Notes Due February 2026225227228 - On July 23, 2025, it closed a public offering of $69.0 million aggregate principal amount of 7.50% Unsecured Notes Due July 2028, with net proceeds of approximately $67.3 million225227228 - On July 29, 2025, the Board declared a distribution of $0.34 per share for the third quarter of 2025225227228 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to financial market risks, including investment valuation risk and interest rate risk, and the potential impact of economic and geopolitical factors on its portfolio and financial performance Investment Valuation Risk This section discusses the inherent uncertainties and potential fluctuations in valuing the company's investment portfolio - A significant portion of the investment portfolio lacks readily available market values and is valued at fair value by OFS Advisor, as valuation designee, with third-party assistance231 - This introduces inherent uncertainty, as fair values may fluctuate significantly and differ from ultimately realized values, especially for less liquid or restricted investments231 - Forced liquidation could result in substantial losses231 Interest Rate Risk This section analyzes the company's exposure to changes in interest rates and their potential impact on income and expenses - As of June 30, 2025, $202.0 million of loans and mezzanine debt bore floating interest rates, making the company sensitive to interest rate changes232233 - Reductions in the U.S. Federal Reserve target federal funds rate could decrease interest income and net investment income232233 - The refinancing of 4.75% Unsecured Notes due February 2026 with 7.50% Unsecured Notes due July 2028 will result in net interest margin compression due to higher interest costs232233 Impact of Interest Rate Changes on Net Investment Income | Basis Point Change | Interest Income (thousands) | Interest Expense (thousands) | Net Change (thousands) | | :----------------- | :-------------------------- | :--------------------------- | :--------------------- | | +25 | $375 | $(133) | $242 | | +50 | $748 | $(291) | $457 | | +75 | $1,121 | $(450) | $671 | | +100 | $1,494 | $(608) | $886 | | +125 | $1,867 | $(767) | $1,100 | | -25 | $(371) | $184 | $(187) | | -50 | $(744) | $343 | $(401) | | -75 | $(1,117) | $501 | $(616) | | -100 | $(1,491) | $660 | $(831) | | -125 | $(1,864) | $818 | $(1,046) | Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting occurred during the quarter - The company's disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of June 30, 2025237238239 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025237238239 PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings The company is not currently subject to any material pending legal proceedings and does not expect incidental legal proceedings to have a material adverse effect on its business, financial condition, results of operations, or cash flows - As of June 30, 2025, the company is not subject to any material pending legal proceedings and does not anticipate any material adverse effects from incidental legal proceedings241 Item 1A. Risk Factors Investing in the company's common stock is speculative and involves a high degree of risk. There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - Investing in the company's common stock is speculative and involves a high degree of risk242243 - No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K were reported242243 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds. The company's Stock Repurchase Program, authorizing up to $10.0 million in common stock repurchases, was extended to May 22, 2026, with $9.6 million remaining. No repurchases were made during the three months ended June 30, 2025 - No unregistered sales of equity securities or use of proceeds occurred244246247 - The Stock Repurchase Program was extended to May 22, 2026, with $9.6 million remaining, but no shares were repurchased during the quarter ended June 30, 2025244246247 Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - This item is not applicable248 Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - This item is not applicable249 Item 5. Other Information This section provides information on Rule 10b5-1 trading plans and the price range of common stock and distributions Rule 10b5-1 Trading Plans This section discloses information regarding trading plans adopted or terminated by directors and officers - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025250 Price Range of Common Stock and Distributions This section provides historical data on the market price range of common stock and declared distributions per share | Period | NAV Per Share | High Sales Price | Low Sales Price | Premium (Discount) of High Sales Price to NAV | Premium (Discount) of Low Sales Price to NAV | Cash Distribution per Share | | :----------------- | :------------ | :--------------- | :-------------- | :-------------------------------------------- | :------------------------------------------- | :-------------------------- | | Fiscal 2025 Q2 | $10.91 | $9.52 | $7.88 | -12.7% | -27.8% | $0.34 | | Fiscal 2025 Q1 | $11.97 | $9.80 | $7.92 | -18.1% | -33.8% | $0.34 | | Fiscal 2024 Q4 | $12.85 | $8.98 | $7.81 | -30.1% | -39.2% | $0.34 | | Fiscal 2024 Q3 | $11.29 | $9.35 | $7.75 | -17.2% | -31.4% | $0.34 | | Fiscal 2024 Q2 | $11.51 | $10.14 | $8.42 | -11.9% | -26.8% | $0.34 | | Fiscal 2024 Q1 | $11.08 | $12.07 | $9.53 | 8.9% | -14.0% | $0.34 | - The company's common stock traded at a discount to NAV per share for all quarters in Fiscal 2025 and most of Fiscal 2024, with the exception of Q1 2024252 - The cash distribution per share remained constant at $0.34 across all reported quarters252 Item 6. Exhibits This section lists all exhibits filed as part of this report, including the Certificate of Incorporation, Bylaws, Third Amendment to the Revolving Credit and Security Agreement, CEO and CFO certifications, and Inline XBRL documents - The exhibits include corporate governance documents (Certificate of Incorporation, Bylaws), a recent amendment to the Revolving Credit and Security Agreement, CEO and CFO certifications (Sarbanes-Oxley Act), and Inline XBRL documents for financial statements253 SIGNATURES This section contains the required signatures of the registrant's authorized officers, including the Chief Executive Officer and Chief Financial Officer, certifying the filing of the report - The report is duly signed by Bilal Rashid, Chief Executive Officer, and Kyle Spina, Chief Financial Officer, on July 31, 2025256