PROSPECT FLEXIBLE INCOME FUND, INC.

TABLE OF CONTENTS

~~Part I—Financial Information~~
	3
		Page
	Forward-Looking Statements	1
PART I	FINANCIAL INFORMATON
Item 1.	Financial Statements
	~~Item 1: Financial~~Consolidated Statements of Assets and Liabilities as of September 30, 2020 (unaudited) and June 30, 2020	3 1
	Consolidated Statements of Operations for the three months ended September 30, 2020 and 2019 (unaudited)	3
	Consolidated Statements of Changes in Net Assets for the three months ended September 30, 2020 and 2019 (unaudited)	4
	Consolidated Statements of Cash Flows for the three months ended September 30, 2020 and 2019 (unaudited)	5
	Consolidated Schedules of Investments as of September 30, 2020 (unaudited) and June 30, 2020	6
	Notes to Consolidated Financial Statements (unaudited)	12
Item 2: 2.	Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations	27 46

	Item 3: 3.	Quantitative and Qualitative Disclosures About Market ~~Risk.~~Risk	45 68
Item 4.	Controls and Procedures	69
PART II	OTHER INFORMATION
	Item ~~4: Controls and Procedures.~~1.	46 Legal Proceedings	69
Item 1A.	Risk Factors	69
~~Part II—Other Information~~	46

	Item ~~1: Legal Proceedings.~~2.	46

	~~Item 1A: Risk Factors.~~	46

	~~Item 2:~~ Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~Proceeds	46 71
Item 3.	Default Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	72
	Signatures	72

	~~Item 3: Defaults Upon Senior Securities~~	46

	~~Item 4: Mine Safety Disclosures.~~	46

	~~Item 5: Other Information~~	46

	~~Item 6: Exhibits.~~	47

~~SIGNATURES~~		48

~~Table~~

Forward-Looking Statements

Some of ~~Contents~~

the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or our performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including, but not limited to, statements as to:

our future operating results;

our business prospects and the prospects of our portfolio companies;

the impact of investments that we expect to make;

our contractual arrangements and relationships with third parties;

the dependence of our future success on the general economy and its impact on the industries in which we invest;

the impact of global health epidemics, including, but not limited to, the recent and ongoing novel coronavirus (“Wuhan Virus”) pandemic, on our and our portfolio companies’ business and the global economy;

uncertainty surrounding the financial stability of the United States, Europe, and China;

the ability of our portfolio companies to achieve their objectives;

difficulty in obtaining financing or raising capital, especially in the current credit and equity environment, and the impact of a protracted decline in the liquidity of credit markets on our and our portfolio companies’ business;

the level and volatility of prevailing interest rates and credit spreads, magnified by the current turmoil in the credit markets;

the impact of changes in London Interbank Offered Rate (“LIBOR”) on our operating results;

adverse developments in the availability of desirable loan and investment opportunities whether they are due to competition, regulation or otherwise;

a compression of the yield on our investments and the cost of our liabilities, as well as the level of leverage available to us;

our regulatory structure and tax treatment, including our ability to operate as a business development company and a regulated investment company;

the adequacy of our cash resources and working capital;

the timing of cash flows, if any, from the operations of our portfolio companies;

the ability of the Investment Adviser to locate suitable investments for us and to monitor and administer our investments; and

authoritative generally accepted accounting principles or policy changes from such standard-setting bodies as the Financial Accounting Standards Board, the Securities and Exchange Commission, Internal Revenue Service, the NASDAQ Global Select Market, and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. The forward looking statements contained in this quarterly report involve risks and uncertainties and undue reliance should not be placed on them. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” in our annual report on Form 10-K and our prospectus, dated October 27, 2020, which was filed with the SEC on October 27, 2020, as supplemented from time to time by prospectus supplements filed with the SEC.

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports on Form 8-K.

As a result of Pathway Capital Opportunity Fund, Inc. (“PWAY”) being the accounting survivor of the Merger (as defined herein), certain financial information and performance of operations regarding PWAY are discussed herein. Such information may contain forward-looking statements that involve risks and uncertainties. Please see “Risk Factors” and above for a discussion of the uncertainties, risks and assumptions associated with such statements. You should read this quarterly report on Form 10-Q in conjunction with the financial statements and related notes and other financial information appearing elsewhere herein.

~~Part I—Financial Information~~

PROSPECT FLEXIBLE INCOME FUND, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

PART I

~~Item 1:~~

~~Financial Statements~~

~~Triton Pacific Investment Corporation, Inc.~~

Item 1. Financial Statements



Assets	September 30, 2020			June 30, 2020
	(unaudited)			(audited)
Investments at fair value:
Affiliate investments (amortized cost of $472,357 and $472,357, respectively)	$	867,914		$	786,988
Non-control/non-affiliate investments (amortized cost of $39,124,370 and $38,402,556, respectively)	36,982,186			35,876,715
Total investments (amortized cost of $39,596,727 and $38,874,913, respectively)	37,850,100			36,663,703
Cash	2,672,194			3,602,662
Deferred financing costs (Note 11)	507,345			522,163
Prepaid expenses and other assets	352,367			385,597
Deferred offering costs	267,074			281,203
Interest receivable	142,158			64,550
Receivable for investments sold	—			381,075
Total Assets	$	41,791,238		$	41,900,953

Liabilities
Revolving Credit Facility (Note 11)	$	21,000,000		$	21,000,000
Accrued audit fees	246,850			178,550
Due to Administrator (Note 4)	225,651			122,384
Distributions payable	119,151			111,447
Due to Affiliates (Note 4)	101,000			94,975
Accrued legal fees	91,126			55,241
Accrued expenses	63,991			28,329
Interest payable	59,767			61,627
Payable for investments purchased	—			690,000
Total Liabilities	$	21,907,536		$	22,342,553
Commitments and Contingencies (Note 10)	—			—
Net Assets	$	19,883,702		$	19,558,400

Components of Net Assets
Common Stock, par value $0.001 per share (75,000,000 shares authorized; 2,384,793 and 2,363,011 shares issued and outstanding, respectively) (Note 3)	$	2,385		$	2,363
Paid-in capital in excess of par (Note 3)	26,970,191			27,133,944
Total distributable earnings (loss) (Note 6)	(7,088,874		)	(7,577,907		)
Net Assets	$	19,883,702		$	19,558,400
Net Asset Value Per Share (Note 12)	$	8.34		$	8.28

See notes to consolidated financial statements.

PROSPECT FLEXIBLE INCOME FUND, INC.

CONSOLIDATED ~~StatementS of Financial Position~~

September 30,
2017 December 31,
(unaudited) 2016
ASSETS

Affiliate Investments, at fair value (amortized cost - $1,916,389 and $1,896,901, respectively) $ 509,993 $ 1,875,202
Non-affiliate Investments, at fair value (amortized cost - $11,017,651 and $8,705,606, respectively) 10,975,686 8,728,971
Cash 5,874,634 3,788,901
Principal and interest receivable 26,606 19,305
Prepaid expenses 67,855 46,052
Reimbursement due from Adviser (see Note 4) 330,587 106,583

TOTAL ASSETS $ 17,785,361 $ 14,565,014

LIABILITIES AND NET ASSETS

LIABILITIES
Payable for investments purchased $ 1,237,500 $ 1,061,625
Accounts payable and accrued liabilities 340,248 225,000
Stockholder distributions payable — 16,574
Due to related parties (see Note 4) 1,239 33,113
TOTAL LIABILITIES 1,578,987 1,336,312

COMMITMENTS AND CONTINGENCIES(see Note 9)

NET ASSETS
Common stock, $0.001 par value, 75,000,000 shares authorized, 1,338,115.18 and 976,407.17 shares issued and outstanding respectively 1,338 976
Capital in excess of par value 18,070,020 13,255,764
Accumulated undistributed net realized gains 14,444 21,925
Accumulated overdistributed net investment income (431,069 ) (51,629 )
Accumulated unrealized appreciation (depreciation) on investments (1,448,359 ) 1,666
TOTAL NET ASSETS 16,206,374 13,228,702

TOTAL LIABILITIES AND NET ASSETS $ 17,785,361 $ 14,565,014

Net asset value per share of common stock at period end $ 12.11 $ 13.55

~~The accompanying~~STATEMENTS OF OPERATIONS

(unaudited)

Three Months Ended September 30,
2020 2019
Investment Income
Interest income from non-control/non-affiliate investments $ 565,925

$ 513,909

Interest income from structured credit securities 282,120
234,735

Total Investment Income 848,045

748,644

Operating Expenses

Allocation of overhead from Prospect Administration (Note 4) 224,993

163,793

Base management fees (Note 4) 183,386

157,409

Amortization of offering costs 147,743

120,606

Interest expense and credit facility expenses (Note 11) 146,648

100,170

Audit and tax expense 72,800

55,833

Legal expense 72,417

25,358

Insurance expense 43,104

38,462

General and administrative 41,223

39,580

Transfer agent’s fees and expenses 35,014

30,553

Valuation services 32,628

23,565

Total Operating Expenses 999,956

755,329

Expense limitation payment (Note 4) (183,386 )
(157,409 )
Total Net Operating Expenses 816,570

597,920

Net Investment Income 31,475

150,724

Net Realized and Net Change in Unrealized Gains (Losses) on Investments
Net realized gains (losses):

Non-control/non-affiliate investments 11,050

(264,029 )
Net realized gains (losses) 11,050

(264,029 )
Net change in unrealized gains (losses):

Non-control/non-affiliate investments 383,657

(503,390 )
Affiliate investments 80,926
22,598

Net change in unrealized gains (losses) 464,583

(480,792 )
Net Realized and Net Change in Unrealized Gains (Losses) on Investments 475,633

(744,821 )
Net Increase (Decrease) in Net Assets Resulting from Operations $ 507,108

$ (594,097 )
Net increase (decrease) in net assets resulting from operations per share (Note 12)⁽¹⁾
$ 0.21

$ (0.25 )
Distributions declared per share $ 0.16
$ 0.17

(1) For the three months ended September 30, 2020 and 2019, the weighted average common shares outstanding were 2,364,156 and 2,382,257, respectively.

See notes ~~are an integral part of these~~to consolidated financial statements.

PROSPECT FLEXIBLE INCOME FUND, INC.

~~Table of Contents~~

~~Triton Pacific Investment Corporation, Inc.~~

CONSOLIDATED ~~Statements of Operations~~

~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016~~

~~(Unaudited)~~

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
INVESTMENT INCOME
Interest from affiliate investments $ — $ 9,540 $ 19,488 $ 27,994
Interest from non-control/ non-affiliate investments 198,075 104,933 536,481 264,444
Fee income from non-control/ non-affiliate investments 29,413 186 40,697 435

Total investment income 227,488 114,659 596,666 292,873

OPERATING EXPENSES
Management fees 83,459 60,625 246,154 156,957
Capital gains incentive fees (see Notes 2 and 4) — 11,265 (334 ) 31,609
Administrator expense 70,495 78,840 213,473 242,332
Professional fees 99,062 33,694 214,914 105,259
Insurance expense 17,779 19,142 57,251 46,763
Other operating expenses 13,095 9,272 23,168 15,189

Total operating expenses 283,890 212,838 754,626 598,109

Expense reimbursement and management fee offsets from Adviser — (201,573 ) (80,847 ) (566,501 )

Net expenses 283,890 11,265 673,779 31,608

Net investment (loss)/ income (56,402 ) 103,394 (77,113 ) 261,265

REALIZED AND UNREALIZED GAIN/(LOSS)
Net realized gain on non-affiliated investments 26,569 — 91,134 (1,167 )
Net increase (decrease) in unrealized appreciation on affiliate investments (88,923 ) — (1,350,763 ) 53,879
Net (decrease)/ increase in unrealized (depreciation)/ appreciation on non-control/ non-affiliate investments (42,474 ) 56,324 (99,262 ) 104,167

Total net realized and unrealized gain (loss) on investments (104,828 ) 56,324 (1,358,891 ) 156,879

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (161,230 ) $ 159,718 $ (1,436,004 ) $ 418,144

PER SHARE INFORMATION - Basic and Diluted
Net increase (decrease) in net assets resulting from operations per share $ (0.13 ) $ 0.19 $ (1.26 ) $ 0.57

Weighted average common shares outstanding - basic and diluted 1,266,225 827,457 1,143,880 731,866

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

~~Table of Contents~~

~~Triton Pacific Investment Corporation, Inc.~~

~~CONSOLIDATED StatementS of~~STATEMENTS OF CHANGES IN NET ASSETS

~~NINE MONTHS ended SEPTEMBER 30, 2017 AND 2016~~

~~(Unaudited)~~

Nine months ended
September 30,
2017 2016
Operations
Net investment income (loss) $ (77,113 ) $ 261,264
Net realized gain (loss) on investments 91,134 (1,167 )
Net increase (decrease) in unrealized appreciation (depreciation) on investments (1,450,025 ) 158,046
Net increase (decrease) in net assets resulting from operations (1,436,004 ) 418,143
Stockholder distributions (see Note 5)
Distributions from net investment income (341,207 ) (285,469 )
Distributions from net realized gain on investments (59,732 ) —
Net decrease in net assets resulting from stockholder distributions (400,939 ) (285,469 )
Capital share transactions
Issuance of common stock (see Note 3) 4,817,586 4,670,733
Reinvestment of stockholder distributions (see Note 3) 214,336 155,067
Repurchase of shares of common stock (217,307 ) (117,060 )
Net increase in net assets resulting from capital share transactions 4,814,615 4,708,740

Total increase in net assets 2,977,672 4,841,414
Net assets at beginning of period 13,228,702 7,326,653
Net assets at end of period $ 16,206,374 $ 12,168,067
Accumulated overdistributed net investment income $ (431,069 ) $ (50,571 )
Accumulated undistributed net realized gains $ 14,444 $ 1,025

~~The accompanying~~

(unaudited)

Common Stock

For the Thee Months Ended September 30, 2020
Shares
Par
Paid-in Capital in
Excess of Par
Distributable
Earnings
(Loss)
Net Assets
Balance as of June 30, 2020
2,363,011

$ 2,363

$ 27,133,944

$ (7,577,907 )
$ 19,558,400
Net increase in net assets resulting from operations

Net investment income
—

—

—

31,475

31,475
Net realized gains (losses) on investments
—

—

—

11,050

11,050
Net change in unrealized gains (losses) on investments
—

—

—

464,583

464,583
Distributions to Shareholders (Note 5)

Distributions from earnings
—

—

—

(18,437 )
(18,437 )
Return of capital distributions
—

—

(351,166 )
—

(351,166 )
Capital Transactions
Shares issued
27,815

28

250,972

—

251,000
Commissions and fees on shares issued
—

—

(15,059 )
—

(15,059 )
Shares issued through reinvestment of dividends
22,753

23

189,321

—

189,344
Repurchase of common shares
(28,786 )
(29 )
(237,459 )
—

(237,488 )
Tax Reclassification of Net Assets (Note 6) —
—
(362 ) 362
—
Total Increase (Decrease) for the three months ended September 30, 2020
21,782

22

(163,753 )
489,033

325,302
Balance as of September 30, 2020
2,384,793

$ 2,385

$ 26,970,191

$ (7,088,874 )
$ 19,883,702

Common Stock
For the Three Months Ended September 30, 2019 Shares Par Paid-in Capital in
Excess of Par Distributable
Earnings
(Loss) Total Net Assets
Balance as of June 30, 2019 2,370,011
$ 2,370
$ 30,105,995
$ (6,697,650 ) $ 23,410,715
Net decrease in net assets resulting from operations
Net investment income —
—
—
150,724
150,724
Net realized gains (losses) on investments —
—
—
(264,029 ) (264,029 )
Net change in unrealized gains (losses) on investments —
—
—
(480,792 ) (480,792 )
Distributions to Shareholders (Note 5)
Return of capital distributions —
—
(406,041 ) —
(406,041 )
Capital Transactions
Shares issued 2,197
2
24,998
—
25,000
Commissions and fees on shares sold —
—
(1,857 ) —
(1,857 )
Shares issued through reinvestment of dividends 19,932
20
213,273
—
213,293
Total Increase (Decrease) for the three months ended September 30, 2019 22,129
22
(169,627 ) (594,097 ) (763,702 )
Balance as of September 30, 2019 2,392,140
$ 2,392
$ 29,936,368
$ (7,291,747 ) $ 22,647,013

See notes ~~are an integral part of these~~to consolidated financial statements.

~~Table of Contents~~

~~Triton Pacific Investment Corporation, Inc.~~

PROSPECT FLEXIBLE INCOME FUND, INC.

CONSOLIDATED ~~Statements of~~STATEMENTS OF CASH FLOWS

(unaudited)



	Three Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$	507,108		$	(594,097	)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Amortization of offering costs	147,743			120,606
Purchases of investments	(1,234,517		)	(10,434,610		)
Repayments and sales of portfolio investments	691,385			1,622,438
Net change in unrealized (gains) losses on investments	(464,583		)	480,792
Net realized (gains) losses on investments	(11,050		)	264,029
Accretion of purchase discount on investments, net	(160,125		)	(47,101		)
Amortization of deferred financing costs	14,818			12,817
Payment-in-kind interest	(7,507		)	(29		)
Changes in other assets and liabilities:
(Increase) Decrease in operating assets
Receivable for investments sold	381,075			456,406
Interest receivable	(77,608		)	(16,263		)
Due from Adviser (Note 4)	—			(28,557		)
Deferred offering costs (Note 4)	(133,614		)	(142,144		)
Prepaid expenses and other assets	33,230			40,759
Due from Affiliate (Note 4)	—			—
Increase (Decrease) in operating liabilities
Due to Adviser (Note 4)	—			29,995
Accrued expenses	35,662			(117,041		)
Accrued legal fees	35,885			(213,657		)
Accrued audit fees	68,300			44,423
Due to Administrator (Note 4)	103,267			4,140
Payable for investments purchased	(690,000		)	(1,961,399		)
Due to Affiliates (Note 4)	6,025			8,281
Interest payable	(1,860		)	26,914
Net cash provided by (used in) operating activities	(756,366		)	(10,443,298		)
Cash flows from financing activities:
Gross proceeds from shares issued (Note 3)	251,000			25,000
Commissions and fees on shares issued	(15,059		)	(1,857		)
Distributions paid to stockholders	(172,555		)	(193,525		)
Repurchase of common shares	(237,488		)	(495,506		)
Financing costs paid and deferred	—			(125,000		)
Borrowings under Revolving Credit Facility (Note 11)	—			10,000,000
Net cash provided by (used in) financing activities	(174,102		)	9,209,112
Net increase (decrease) in cash	(930,468		)	(1,234,186		)
Cash at beginning of period	3,602,662			6,730,743
Cash at end of period	$	2,672,194		$	5,496,557
Supplemental disclosures:
Cash paid for interest	$	133,690		$	60,439
Non-cash financing activities:
Value of shares issued through reinvestment of dividends	$	189,344		$	213,293

~~NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016~~

~~(Unaudited)~~

Nine months ended
September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net (decrease)/ increase in net assets resulting from operations $ (1,436,004 ) $ 418,143
Adjustments to reconcile net (decrease)/ increase in net assets resulting from operations to net cash used by operating activities
Purchases of investments (6,118,500 ) (3,470,750 )
Proceeds from sales and repayments of investments 3,921,509 220,384
Net realized gain (loss) from investments (91,134 ) 1,167
Net increase (decrease) in unrealized appreciation (depreciation) on investments 1,450,025 (158,046 )
Accretion of discount (23,918 ) (11,985 )
Net increase in paid-in-kind interest (19,488 ) (27,997 )
Increases and decreases in assets and liabilities
Principal and interest receivable (7,301 ) (14,569 )
Prepaid expenses (21,803 ) (32,182 )
Reimbursement due from Adviser (224,004 ) 32,675
Payable for investments purchased 175,875 336,000
Accounts payable and accrued liabilities 115,248 —
Due to related parties (31,874 ) 42,614
NET CASH USED BY OPERATING ACTIVITIES (2,311,369 ) (2,664,546 )

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 4,817,586 4,670,733
Payments on repurchases of shares of common stock (217,307 ) (117,060 )
Stockholder distributions (186,603 ) (130,403 )
Increases in distributions payable (16,574 ) 2,705
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,397,102 4,425,975

NET INCREASE IN CASH 2,085,733 1,761,429

CASH - BEGINNING OF PERIOD $ 3,788,901 $ 1,812,341

CASH - END OF PERIOD $ 5,874,634 $ 3,573,770

Supplemental schedule of non-cash investing activities
Reinvestment of stockholder distributions $ 214,336 $ 155,067

~~The accompanying~~See notes ~~are an integral part of these~~to consolidated financial statements.

PROSPECT FLEXIBLE INCOME FUND, INC.

~~Table of Contents~~

~~TRITON PACIFIC INVESTMENT CORPORATION, INC.~~

CONSOLIDATED SCHEDULE OF INVESTMENTS

AS OF SEPTEMBER 30, ~~2017~~

~~(UNAUDITED)~~

Portfolio Company Footnotes Industry Rate (b) Floor Maturity Principal Amount/ Number of Shares Amortized Cost^(f) Fair Value^(c)
Senior Secured Loans—First Lien—47.03%
LSF9 Atlantis Holdings, LLC Telecommunications L+6.00% (7.24%) 1.24 % 5/1/2023 496,875 $ 492,146 $ 499,876
California Pizza Kitchen, Inc. Beverage, Food & Tobacco L+6.00% (7.24%) 1.24 % 8/19/2022 346,500 343,659 344,191
CareCentrix, Inc. Healthcare & Pharmaceuticals L+5.00% (6.33%) 1.33 % 7/8/2021 196,000 192,617 197,593
CareerBuilder Business Services L+6.75% (8.08%) 1.33 % 7/27/2023 500,000 485,390 489,793
Coronado Group LLC Metals & Mining L+7.00% (8.33%) 1.33 % 6/6/2023 498,750 484,503 503,738
CRCI Holdings, Inc. Business Services L+5.50% (6.83%) 1.33 % 8/31/2023 324,564 321,612 326,795
Deluxe Entertainment Services Group, Inc. Media: Diversified and Production L+5.50% (6.81%) 1.31 % 2/28/2020 343,112 335,523 345,471
FHC Health Systems, Inc. Healthcare & Pharmaceuticals L+4.00% (5.24%) 1.24 % 12/23/2021 121,875 121,168 119,183
Flavors Holdings, Inc. Tranche B Beverage, Food & Tobacco L+5.75% (7.08%) 1.33 % 4/3/2020 106,250 104,000 101,203
GK Holdings, Inc. Business Services L+6.00% (7.33%) 1.33 % 1/20/2021 121,563 121,045 114,877
IG Investments Holdings, LLC Business Services L+4.00% (5.33%) 1.33 % 10/29/2021 345,543 344,153 349,287
InfoGroup Inc. Business Services L+5.00% (6.33%) 1.33 % 3/28/2023 497,500 492,911 486,928
Jackson Hewitt, Inc. Business Services L+7.00% (8.31%) 1.31 % 7/30/2020 186,138 183,700 180,089
McAfee LLC Business Services L+4.50% (5.83%) 1.33 % 9/27/2024 250,000 247,500 251,469
Moran Foods, LLC Beverage, Food & Tobacco L+6.00% (7.24%) 1.24 % 12/5/2023 347,375 338,119 319,585
Paradigm Acquisition Corp. Healthcare & Pharmaceuticals L+5.00% (6.42%) 1.42 % 6/2/2022 122,188 120,735 122,798
Pre-Paid Legal Services, Inc Consumer Services L+5.25% (6.50%) 1.25 % 7/1/2019 320,191 319,563 323,092
Raley’s Beverage, Food & Tobacco L+5.25% (6.49%) 1.24 % 5/18/2022 288,431 288,431 291,676
Sahara Parent Inc Business Services L+5.00% (6.31%) 1.31 % 8/16/2024 350,000 346,532 343,875
SITEL Worldwide Corporation Business Services L+5.50% (6.81%) 1.31 % 9/20/2021 196,000 195,530 196,294
Strike, LLC Energy: Oil & Gas L+8.00% (9.33%) 1.33 % 11/30/2022 336,875 327,876 341,928
Travel Leaders Group, LLC Hotel, Gaming & Leisure L+4.50% (5.81%) 1.31 % 1/25/2024 348,252 346,677 353,478
TruGreen Limited Partnership Consumer Services L+4.00% (5.24%) 1.24 % 4/13/2023 346,500 342,323 351,264
Verdesian Life Sciences LLC Wholesale Trade-Nondurable Goods L+5.00% (6.31%) 1.31 % 7/1/2020 208,335 207,172 162,501
Wirepath LLC Consumer Services L+5.25% (6.56%) 1.31 % 8/5/2024 500,000 497,500 504,063
Total Senior Secured Loans—First Lien $ 7,698,817 $ 7,600,385 $ 7,621,047

Senior Secured Loans—Second Lien—20.70%
Flavors Holdings, Inc. Beverage, Food & Tobacco L+10.00% (11.33%) 1.33 % 10/7/2021 125,000 122,161 93,438
FullBeauty Brands Holding High Tech Industries L+9.00% (10.24%) 1.24 % 10/13/2023 250,000 218,743 114,688
GK Holdings, Inc. Business Services L+10.25% (11.55%) 1.33 % 1/21/2022 125,000 123,468 118,750
Inmar Business Services L+8.00% (9.27%) 1.27 % 5/1/2025 500,000 492,866 502,813
McAfee LLC Business Services L+8.50% (9.83%) 1.33 % 9/26/2025 500,000 492,500 502,293
Neustar, Inc. High Tech Industries L+8.00% (9.31%) 1.31 % 2/28/2025 750,000 738,862 761,250
NPC International, Inc. Beverage, Food & Tobacco L+7.50 (8.74%) 1.24 % 3/28/2025 500,000 497,896 508,438
Oxbow Carbon LLC Metals & Mining L+7.00 (8.24%) 1.24 % 1/19/2020 250,000 239,541 251,094
Rocket Software, Inc. Business Services L+9.50% (10.83%) 1.33 % 10/14/2024 500,000 491,229 501,875
Total Senior Secured Loans—Second Lien $ 3,500,000 $ 3,417,266 $ 3,354,639

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

2020 (unaudited)

~~Table of Contents~~

Portfolio Company Footnotes Industry Rate (b) Floor Maturity Principal Amount/ Number of Shares Amortized Cost^(f) Fair Value^(c)
Subordinated Convertible Debt—0.00%
Javlin Capital LLC Subordinated Convertible Note (a) (e) Specialty Finance 6.00 % 3/31/2020 666,389 666,389 —
Total Subordinated Convertible Debt $ 666,389 $ 666,389 $ —

Equity/Other—3.15%
ACON IWP Investors I, L.L.C. (a) Healthcare & Pharmaceuticals 500,000 500,000 509,993
Javlin Capital LLC Class C-2 Preferred Units (a) (d) (e) Specialty Finance 214,286 750,000 —
Total Equity/Other 714,286 $ 1,250,000 $ 509,993

TOTAL INVESTMENTS—70.88% $ 12,934,040 $ 11,485,679
OTHER ASSETS IN EXCESS OF LIABILITIES—29.12% $ 4,720,695
NET ASSETS - 100.0% $ 16,206,374



							September 30, 2020 (Unaudited)
Portfolio Company / Security Type	Industry	Acquisition Date	Coupon/Yield (b)		Floor	Legal Maturity	Principal/ Quantity		Amortized Cost (d)		Fair Value (c)		% of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control):
Senior Secured Loans-First Lien^(j)(l)(n)
Amerilife Holdings, LLC (Delayed Draw - $39,773 Commitment) ^(g)(m)	Banking, Finance, Insurance & Real Estate	2/6/2020	—		—	3/18/2027	$	—	$	—	$	—	—	%
Amerilife Holdings, LLC (Delayed Draw) ^(g)	Banking, Finance, Insurance & Real Estate	2/6/2020	1ML+4.00% (4.15%)		—	3/18/2027	45,341		45,341		45,341		0.23	%
Amerilife Holdings, LLC ^(g)	Banking, Finance, Insurance & Real Estate	2/6/2020	1ML+4.00% (4.15%)		—	3/18/2027	663,111		661,826		661,826		3.33	%
CareerBuilder ^(g)(k)	Services: Consumer	7/27/2017	3ML+6.75% (7.75%)		1.00	7/31/2023	969,272		906,072		900,211		4.53	%
Correct Care Solutions Group Holdings, LLC ^(g)(k)	Healthcare & Pharmaceuticals	4/2/2019	1ML+5.50% (5.72%)		—	10/1/2025	2,070,525		2,032,015		2,070,525		10.41	%
Digital Room Holdings, Inc^(g)(k)	Media: Broadcasting & Subscription	5/14/2019	6ML+5.00% (5.27%)		—	5/21/2026	1,975,000		1,948,568		1,926,200		9.69	%
First Brands, LLC (f/k/a Trico Group, LLC)^(g)(k)	Automotive	7/23/2020	3ML+7.50% (8.50%)		1.00	2/2/2024	1,242,188		1,183,437		1,210,101		6.08	%
GK Holdings, Inc.^(i)(o)	Media: Broadcasting & Subscription	1/30/2015	3ML+6.00% (9.00%)		1.00	1/20/2021	117,813		117,581		64,797		0.32	%
Global Tel*Link Corporation ^(g)(k)	Telecommunications	4/5/2019	1ML+4.25% (4.40%)		—	11/28/2025	1,973,637		1,920,528		1,893,013		9.52	%
Help/Systems Holdings, Inc. ^(g)	High Tech Industries	11/14/2019	3ML+4.75% (5.75%)		1.00	11/19/2026	1,492,500		1,479,318		1,492,500		7.51	%
Janus International Group, LLC ^(g)(k)	Construction & Building	7/9/2019	6ML+4.50% (5.50%)		1.00	2/12/2025	1,726,219		1,726,219		1,700,325		8.55	%
Keystone Acquisition Corp. ^(g)(k)	Healthcare & Pharmaceuticals	4/10/2019	3ML+5.25% (6.25%)		1.00	5/1/2024	2,071,403		2,047,788		2,047,788		10.30	%
McAfee LLC ^(g)	High Tech Industries	9/27/2017	1ML+3.75% (3.90%)		—	9/30/2024	239,833		238,003		238,535		1.20	%
The Octave Music Group, Inc.^(g)	Consumer goods: Durable	2/26/2020	1ML+5.25% (6.25%)		1.00	5/29/2025	737,069		730,386		707,045		3.56	%
PGX Holdings, Inc. ^(g)	Services: Consumer	4/2/2019	1ML+5.25% (6.25%)		1.00	9/29/2023	653,387		649,780		649,780		3.27	%
Quidditch Acquisition, Inc. ^(g)	Beverage, Food & Tobacco	3/16/2018	3ML+7.00% (8.00%)		1.00	3/21/2025	487,563		479,926		453,433		2.28	%
Research Now Group, Inc. & Survey Sampling International LLC ^(g)	Services: Business	4/2/2019	3ML+5.50% (6.50%)		1.00	12/20/2024	1,975,885		1,975,885		1,954,348		9.83	%
Rocket Software, Inc. ^(g)(k)	High Tech Industries	4/2/2019	1ML+4.25% (4.40%)		—	11/28/2025	2,070,598		2,054,542		2,045,958		10.29	%
Securus Technologies Holdings, Inc.^(g)(k)	Telecommunications	7/31/2019	1ML+4.50% (5.50%)		1.00	11/1/2024	1,974,619		1,829,995		1,796,781		9.04	%
Shutterfly, Inc.^(g)^(k)	Media: Diversified and Production	11/14/2019	3ML+6.00% (7.00%)		1.00	9/25/2026	1,741,935		1,580,941		1,656,200		8.33	%
Sorenson Communications, LLC ^(g)(k)	Services: Consumer	4/26/2019	3ML+6.50% (6.72%)		—	4/29/2024	1,248,450		1,234,546		1,248,450		6.28	%
Staples, Inc.^(g)(k)	Wholesale	11/18/2019	1ML+5.00% (5.25%)		—	4/16/2026	1,984,925		1,961,599		1,875,111		9.43	%
Transplace Holdings, Inc. ^(g)	Transportation: Cargo	4/10/2019	6ML+3.75% (4.75%)		1.00	10/7/2024	1,482,714		1,466,482		1,466,482		7.37	%
Upstream Newco, Inc.^(g)	Services: Consumer	10/24/2019	1ML+4.50% (4.65%)		—	11/20/2026	1,741,250		1,733,563		1,700,788		8.55	%
Vero Parent Inc. (Sahara) ^(g)	High Tech Industries	8/11/2017	3ML+6.25% (6.51%)		—	8/16/2024	339,570		336,998		335,166		1.68	%
Total Senior Secured Loans-First Lien									$	30,341,339	$	30,140,704	151.58	%

Senior Secured Loans-Second Lien^(j)(l)(n)
Encino Acquisition Partners Holdings, LLC ^(g)	Energy: Oil & Gas	9/25/2018	1ML+6.75% (7.75%)		1.00	10/29/2025	$	500,000	$	496,040	$	401,875	2.02	%
FullBeauty Brands Holding^(f)	Retail	2/7/2019	7%		—	1/31/2025	11,825		9,742		7,982		0.04	%
GK Holdings, Inc.^(i)(o)	Media: Broadcasting & Subscription	1/30/2015	3ML+10.25% (13.25%)		1.00	1/21/2022	125,000		123,740		37,500		0.19	%
Inmar, Inc. ^(g)	Media: Advertising, Printing&Publishing	4/25/2017	6ML+8.00% (9.00%)		1.00	5/1/2025	500,000		494,179		365,548		1.84	%
Total Senior Secured Loans-Second Lien									$	1,123,701	$	812,905	4.09	%

Senior Secured Notes ^(a)(j)(l)
Ace Cash Express, Inc.^(k)	Financial	12/8/2017	12.00	%	N/A	12/15/2022	$	1,000,000	$	960,495	$	846,716	4.26	%
Total Senior Secured Notes									$	960,495	$	846,716	4.26	%

PROSPECT FLEXIBLE INCOME FUND, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (unaudited)



							September 30, 2020 (Unaudited)
Portfolio Company / Security Type	Industry	Acquisition Date	Coupon/Yield (b)		Floor	Legal Maturity	Principal/ Quantity		Amortized Cost (d)		Fair Value (c)		% of Net Assets
Structured Subordinated Notes ^(a)(e)(j)(l)
Apidos CLO XXIV	Structured Finance	5/17/2019	21.29	%	N/A	10/20/2030	$	250,000	$	161,596	$	141,513	0.71	%
Apidos CLO XXVI	Structured Finance	7/25/2019	21.66	%	N/A	7/18/2029	250,000		181,731		171,935		0.86	%
California CLO IX, Ltd.	Structured Finance	12/13/2019	24.93	%	N/A	7/16/2032	500,000		194,477		223,340		1.12	%
Carlyle Global Market Strategies CLO 2014-4-R, Ltd.	Structured Finance	4/7/2017	16.20	%	N/A	7/15/2030	250,000		191,148		158,177		0.79	%
Carlyle Global Market Strategies CLO 2017-5, Ltd.	Structured Finance	12/18/2017	13.26	%	N/A	1/22/2030	500,000		489,886		387,564		1.95	%
Galaxy XIX CLO, Ltd.	Structured Finance	12/5/2016	17.28	%	N/A	7/24/2030	250,000		175,897		108,669		0.55	%
GoldenTree Loan Opportunities IX, Ltd.	Structured Finance	7/19/2017	16.19	%	N/A	10/29/2029	250,000		195,907		133,541		0.67	%
Madison Park Funding XIII, Ltd.	Structured Finance	11/6/2015	25.17	%	N/A	4/22/2030	250,000		179,259		166,785		0.84	%
Madison Park Funding XIV, Ltd.	Structured Finance	11/16/2015	17.43	%	N/A	10/22/2030	250,000		190,000		142,411		0.72	%
Octagon Investment Partners XIV, Ltd.	Structured Finance	12/1/2017	17.31	%	N/A	7/16/2029	850,000		556,473		401,301		2.02	%
Octagon Investment Partners XV, Ltd.	Structured Finance	5/23/2019	21.38	%	N/A	7/19/2030	500,000		290,911		273,933		1.38	%
Octagon Investment Partners XXI,Ltd.^(k)	Structured Finance	1/6/2016	15.74	%	N/A	2/14/2031	387,538		234,284		161,164		0.81	%
Octagon Investment Partners 30, Ltd.	Structured Finance	11/16/2017	14.28	%	N/A	3/17/2030	475,000		442,616		339,622		1.71	%
Octagon Investment Partners 31, Ltd.	Structured Finance	12/20/2019	32.74	%	N/A	7/20/2030	250,000		155,941		147,466		0.74	%
Octagon Investment Partners 36, Ltd.	Structured Finance	12/20/2019	26.24	%	N/A	4/15/2031	500,000		418,475		361,499		1.82	%
Octagon Investment Partners 39, Ltd.	Structured Finance	1/9/2020	25.32	%	N/A	10/21/2030	250,000		193,956		178,068		0.89	%
OZLM XII, Ltd.^(p)	Structured Finance	1/17/2017	—	%	N/A	4/30/2027	275,000		190,362		116,595		0.59	%
Sound Point CLO II, Ltd.	Structured Finance	5/16/2019	16.70	%	N/A	1/26/2031	1,500,000		871,438		649,000		3.26	%
Sound Point CLO VII-R, Ltd.	Structured Finance	8/23/2019	21.54	%	N/A	10/23/2031	150,000		61,521		49,281		0.25	%
Sound Point CLO XVIII, Ltd.	Structured Finance	5/16/2019	15.17	%	N/A	1/21/2031	250,000		236,401		200,299		1.01	%
THL Credit Wind River 2013-1 CLO, Ltd.	Structured Finance	11/1/2017	12.84	%	N/A	7/22/2030	325,000		249,415		156,263		0.79	%
Venture XXXIV CLO, Ltd.	Structured Finance	7/30/2019	19.95	%	N/A	10/15/2031	250,000		215,206		193,154		0.97	%
Voya IM CLO 2013-1, Ltd.^(k)	Structured Finance	6/9/2016	9.02	%	N/A	10/15/2030	278,312		195,135		131,653		0.66	%
Voya CLO 2016-1, Ltd.	Structured Finance	1/22/2016	15.21	%	N/A	1/21/2031	250,000		218,046		188,628		0.95	%
Total Structured Subordinated Notes^(e)									$	6,490,081	$	5,181,861	26.06	%

Equity/Other^(a)(j)(l)
FullBeauty Brands Holding, Common Stock^(h)(i)	Retail	2/7/2019	N/A		N/A	N/A	72		$	208,754	$	—	—	%
Total Equity/Other									$	208,754	$	—	—	%

Total Non-Control/Non-Affiliate Investments									$	39,124,370	$	36,982,186	185.99	%

Affiliate Investments (5.00% to 24.99% voting control):
Equity/Other^(a)(j)(l)
ACON IWP Investors I, L.L.C. ^(h)(i)	Healthcare & Pharmaceuticals	4/30/2015	N/A		N/A	N/A	$	472,357	$	472,357	$	867,914	4.37	%
Total Equity/Other									$	472,357	$	867,914	4.37	%

Total Affiliate Investments									$	472,357	$	867,914	4.37	%

Total Portfolio Investments									$	39,596,727	$	37,850,100	190.36	%

(a)

~~Affiliated investment as defined by the 1940 Act, whereby~~Indicates assets that the Company ~~owns between 5% and 25%~~believes do not represent “qualifying assets” under Section 55(a) of ~~the portfolio company’s outstanding voting securities and the investments are not classified as controlled investments.~~Affiliated funds that are managed by an affiliate of Triton Pacific Adviser, LLC also hold investments in this security. The aggregate fair value of non-controlled, affiliated investments at September 30, 2017 represented 3.15% of the Company’s net assets. Fair value as of December 31, 2016 along with transactions during the period ended September 30, 2017 in affiliated investments were as follows):

Nine months ended September 30, 2017
Non-controlled, Affiliated Investments Fair Value at December 31, 2016 Gross Additions (Cost)* Gross Reductions (Cost)** Fair Value at September 30, 2017 Net Realized Gain (Loss) Interest & Dividends Credited to Income
ACON IWP Investors I, L.L.C. $ 691,072 $ — $ — $ 509,993 $ — $ —
Javlin Capital, LLC, Convertible Note 646,901 19,488 — — — 19,488
Javlin Capital, LLC, C-2 Preferred Units 537,229 — — — — —
Total $ 1,875,202 $ 19,488 $ — $ 509,993 $ — $ 19,488

*Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

**Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

~~(b)~~

~~Certain variable rate securities in the Company’s portfolio bear interest at a rate determined by a publicly disclosed base rate spread.As of September 30, 2017, the three-month London Interbank Offered Rate, or LIBOR, was 1.33500%.~~

~~(c)~~

~~Fair value and market value are determined by the Company’s board of directors (see Note 7.)~~

~~(d)~~

~~Security held within TPJ Holdings, Inc., a wholly-owned subsidiary of the Company. See Note 2 for a dicussion on the basis of consolidation.~~

~~(e)~~

~~The investment is not a qualifying asset under~~ the Investment Company Act of 1940, as ~~amended. A business development company~~amended (the “1940 Act”). Under the 1940 Act, we may not acquire any ~~asset other than a qualifying~~non-qualifying asset unless, at the time ~~the~~such acquisition is made, qualifying assets represent at least 70% of ~~the business development company’s~~our total assets. AsOf the Company’s total investments as of September 30, ~~2017, 100%~~2020, 15% are non-qualifying assets as a percentage of ~~the Company’s~~ total ~~assets represented qualifying~~ assets.

~~(f)~~

(b)

The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate ("LIBOR" or "L") which resets monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread over LIBOR or the prime lending rate ("Prime") and the current contractual interest rate in effect at September 30, 2020. Certain investments are subject to a LIBOR or Prime interest rate floor. The one-month ("1ML"), two-month ("2ML"), three-month ("3ML"), and six-month ("6ML") LIBOR rates are based on the applicable LIBOR rate for each investment on its reset date.


(c)	Fair value is determined by the Company’s board of directors (see Note 2).


(d)	See Note 56 for a discussion of the tax cost of the portfolio.

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

PROSPECT FLEXIBLE INCOME FUND, INC.

~~Table of Contents~~

~~TRITON PACIFIC INVESTMENT CORPORATION, INC.~~

CONSOLIDATED SCHEDULE OF INVESTMENTS

AS OF ~~DECEMBER 31, 2016~~

Portfolio Company Footnotes Industry Rate^(b) Base Rate Floor Maturity Principal Amount/ Number of Shares Amortized Cost^(f) Fair Value^(c)
Senior Secured Loans—First Lien—51.11%
California Pizza Kitchen, Inc. Beverage, Food & Tobacco L+6.00% (7.00%) 1.0 % 8/19/2022 $ 349,125 $ 345,842 $ 348,326
CareCentrix, Inc. Healthcare & Pharmaceuticals L+5.00% (6.00%) 1.0 % 7/8/2021 197,500 193,575 196,266
CRCI Holdings, Inc. Business Services L+5.50% (6.50%) 1.0 % 8/31/2023 349,125 345,794 349,851
Curo Health Services Holdings, Inc. Healthcare & Pharmaceuticals L+5.50% (6.50%) 1.0 % 2/7/2022 122,813 121,909 123,785
Deluxe Entertainment Services Group, Inc. Media: Diversified and Production L+6.00% (7.00%) 1.0 % 2/28/2020 350,000 340,080 347,375
FHC Health Systems, Inc. Healthcare & Pharmaceuticals L+4.00% (5.00%) 1.0 % 12/23/2021 122,812 121,970 119,742
Flavors Holdings, Inc. Tranche B Beverage, Food & Tobacco L+5.75% (6.75%) 1.0 % 4/3/2020 110,938 107,998 90,414
GK Holdings, Inc. Business Services L+5.50% (6.50%) 1.0 % 1/20/2021 122,500 121,847 121,888
Global Healthcare Exchange, LLC Healthcare & Pharmaceuticals L+4.25% (5.25%) 1.0 % 8/15/2022 148,132 148,140 149,583
GTCR Valor Companies, Inc. Business Services L+6.00% (7.00%) 1.0 % 6/16/2023 348,250 335,050 345,856
IG Investments Holdings, LLC Business Services L+5.00% (6.00%) 1.0 % 10/29/2021 348,187 346,539 351,146
Imagine Print Solutions, LLC Business Services L+6.00% (7.00%) 1.0 % 3/30/2022 248,125 244,986 252,467
Jackson Hewitt, Inc. Business Services L+7.00% (8.00%) 1.0 % 7/30/2020 196,000 193,020 189,385
Mister Car Wash, Inc. Automotive Repair, Services, and Parking L+4.25% (5.25%) 1.0 % 8/20/2021 121,875 121,036 122,459
Moran Foods, LLC Beverage, Food & Tobacco L+6.00% (7.00%) 1.0 % 12/5/2023 350,000 339,619 350,000
Paradigm Acquisition Corp. Healthcare & Pharmaceuticals L+5.00% (6.00%) 1.0 % 6/2/2022 123,125 121,537 122,560
Polycom, Inc. High Tech Industries L+6.50% (7.50%) 1.0 % 9/27/2023 338,479 324,979 341,441
Pre-Paid Legal Services, Inc Consumer Services L+5.25% (6.25%) 1.0 % 7/1/2019 350,000 349,125 351,750
Raley’s Beverage, Food & Tobacco L+6.25% (7.25%) 1.0 % 5/18/2022 295,823 295,823 299,151
Ranpak Corp. Paper and Allied Products L+3.25% (4.25%) 1.0 % 10/1/2021 114,506 114,297 115,294
SITEL Worldwide Corporation Business Services L+5.50% (6.50%) 1.0 % 9/20/2021 197,500 196,488 197,994
SiteOne Landscape Supply LLC Business Services L+4.50% (5.50%) 1.0 % 9/20/2021 347,379 344,506 350,094
SolarWinds, Inc. High Tech Industries L+4.50% (5.50%) 1.0 % 2/3/2023 248,750 236,913 252,237
Strike, LLC Energy: Oil & Gas L+3.75% (10.75%) 7.0 % 11/30/2022 350,000 339,692 346,500
TIBCO Software, Inc. High Tech Industries L+5.50% (6.50%) 1.0 % 12/4/2020 122,813 121,067 123,555
TruGreen Limited Partnership Consumer Services L+5.50% (6.50%) 1.0 % 4/13/2023 348,250 343,532 353,909
Verdesian Life Sciences LLC Wholesale Trade-Nondurable Goods L+5.00% (6.00%) 1.0 % 7/1/2020 221,546 220,054 198,285
Vivid Seats Ltd. Consumer Services L+5.75% (6.75%) 1.0 % 10/12/2022 250,000 245,197 250,000
Total Senior Secured Loans—First Lien $ 6,793,553 $ 6,680,615 $ 6,761,313

Senior Secured Loans—Second Lien—14.87%
Cheddar’s Casual Café, Inc. Retail L+9.75% (10.75%) 1.0 % 1/4/2023 750,000 712,500 712,500
Flavors Holdings, Inc. Beverage, Food & Tobacco L+10.00% (11.00%) 1.0 % 10/7/2021 125,000 121,619 75,000
FullBeauty Brands Holding High Tech Industries L+9.00% (10.00%) 1.0 % 10/13/2023 250,000 218,269 173,750
GK Holdings, Inc. Business Services L+9.50% (10.50%) 1.0 % 1/21/2022 125,000 123,197 126,250
Oxbow Carbon LLC Metals & Mining L+7.00 (8.00%) 1.0 % 1/19/2020 250,000 237,142 245,625
Rocket Software, Inc. Business Services L+9.50% (10.50%) 1.0 % 10/14/2024 500,000 490,281 508,595
SCS Holdings I Inc. High Tech Industries L+9.50% (10.50%) 1.0 % 10/13/2023 125,000 121,983 125,938
Total Senior Secured Loans—Second Lien $ 2,125,000 $ 2,024,991 $ 1,967,658

Subordinated Convertible Debt—4.89%
Javlin Capital LLC Subordinated Convertible Note (a) (e) Specialty Finance 6.00% 3/31/2020 646,901 646,901 646,901
Total Subordinated Convertible Debt $ 646,901 $ 646,901 $ 646,901

Equity/Other—9.29%
ACON IWP Investors I, L.L.C. (a) Healthcare & Pharmaceuticals 500,000 500,000 691,072
Javlin Capital LLC Class C-2 Preferred Units (a) (d) (e) Specialty Finance 214,286 750,000 537,229
Total Equity/Other 714,286 $ 1,250,000 $ 1,228,301

TOTAL INVESTMENTS—80.16% $ 10,602,507 $ 10,604,173
OTHER ASSETS IN EXCESS OF LIABILITIES—19.84% $ 2,624,529
NET ASSETS - 100.00% $ 13,228,702

SEPTEMBER 30, 2020 (unaudited)

~~(a)~~

(e)

The structured subordinated notes and preference/preferred shares are considered equity positions in the Collateralized Loan Obligations (“CLOs”), which is referred to as "Subordinated Structured Notes", or "SSN". The CLO equity investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The current estimated yield is calculated using amortized cost based on the current projections of this excess cash flow taking into account assumptions which have been made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions.


(f)	This investment has contractual payment-in-kind (“PIK”) interest. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date.

(g)

Security is held by Prospect Flexible Funding, LLC, our SPV, and is pledged as collateral for the Credit Facility and such security is not available as collateral to our general creditors (see Note 11). The fair values of the investments held by the SPV at September 30, 2020 and June 30, 2020 were $30,843,330 and $29,705,147, respectively, representing 81% of our total investments for each period.

(h)

Affiliated investment as defined by the 1940 Act, whereby the Company owns between 5% and 25% of the portfolio company’s outstanding voting securities and the investments are not classified as controlled investments. Affiliated funds that are managed by an affiliate of Triton Pacific Adviser, LLC also hold investments in this security. The aggregate fair value of non-controlled, affiliated investments at ~~December 31, 2016~~September 30, 2020 represented ~~14.23%~~4.37% of the Company’s net assets. Fair value as of ~~December 31, 2016~~September 30, 2020 along with transactions during the ~~period~~three months ended ~~December 31, 2015~~September 30, 2020 in affiliated investments were as follows:

Year Ended December 31, 2016
Non-controlled, Affiliated Investments Fair Value at December 31, 2015 Gross Additions (Cost)* Gross Reductions (Cost)** Fair Value at December 31, 2016 Net Realized Gain (Loss) Interest & Dividends Credited to Income
ACON IWP Investors I, L.L.C. $ 738,266 $ — $ — $ 691,072 $ — $ —
Javlin Capital, LLC, Convertible Note 609,219 37,682 — 646,901 — 37,682
Javlin Capital, LLC, C-2 Preferred Units 750,000 — — 537,229 — —
Total $ 2,097,485 $ 37,682 $ — $ 1,875,202 $ — $ 37,682



Non-controlled, Affiliated Investments	Number of Shares	Fair Value at June 30, 2020		Gross Additions (Cost)*		Gross Reductions (Cost)**		Unrealized Change in FMV		Net Realized Gain (Loss)		Fair Value at September 30, 2020		Interest & Dividends Credited to Income
ACON IWP Investors I, L.L.C.	472,357	$	786,988	$	—	$	—	$	80,926	—		$	867,914	$	—
Total		$	786,988	$	—	$	—	$	80,926	$	—	$	867,914	$	—

(i) Represents non-income producing security that has not paid interest or dividends in the year preceding the reporting date.


(j)	Investments are valued using significant unobservable inputs and are categorized as Level 3 investments in accordance with ASC 820. See Notes 2 and 8 within the accompanying notes to the consolidated financial statements.


(k)	Acquisition date represents the date of FLEX's initial investment. Follow-on acquisitions have occurred on the following

dates to arrive at FLEX's current investment (excluding effects of capitalized PIK interest, premium/original issue discount

amortization/accretion, and partial repayments):



Portfolio Company	Investment	Follow-On Acquisition Dates	Follow-On Acquisitions (Excluding initial investment cost)
Ace Cash Express, Inc.	Senior Secured Notes	7/15/2019	$	493,625
CareerBuilder	Senior Secured Loans-First Lien	6/5/2020	690,000
Correct Care Solutions Group Holdings, LLC	Senior Secured Loans-First Lien	4/10/2019, 7/25/2019	1,327,000
Digital Room Holdings, Inc	Senior Secured Loans-First Lien	7/16/2019	490,000
First Brands, LLC (f/k/a Trico Group, LLC)	Senior Secured Loans-First Lien	7/28/2020	750,000
Global Tel*Link Corporation	Senior Secured Loans-First Lien	7/9/2019, 7/16/2019	1,436,250
Janus International Group, LLC	Senior Secured Loans-First Lien	8/7/2019	1,498,125
Keystone Acquisition Corp.	Senior Secured Loans-First Lien	4/23/2019, 8/2/2019	1,576,000
Octagon Investment Partners XXI, Ltd.	Structured subordinated notes	2/14/19	35,015
Rocket Software, Inc.	Senior Secured Loans-First Lien	6/28/2019, 7/30/2019	1,327,272
Securus Technologies Holdings, Inc.	Senior Secured Loans-First Lien	8/2/2019	908,750
Shutterfly, Inc.	Senior Secured Loans-First Lien	11/18/2019, 11/20/2019	1,361,250
Sorenson Communications, LLC	Senior Secured Loans-First Lien	5/27/2020	985,000
Staples, Inc.	Senior Secured Loans-First Lien	2/3/2020	980,031
Voya IM CLO 2013-1, Ltd.	Structured subordinated notes	10/17/2017, 7/1/2019	20,584


(l)	None of the investments qualify as restricted securities in accordance with Rule 12-12 of Regulation S-X.


(m)	Delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 4.00%. As of September 30, 2020, we had $39,773 of delayed draw term loan commitments to our portfolio companies.


(n)	Syndicated investments which were originated by a financial institution and broadly distributed.


(o)	Investment on non-accrual status as of the reporting date (see Note 2).

(p)

The effective yield has been estimated to be 0% as expected future cash flows are anticipated to not be sufficient to repay the investment at cost. If the expected investment proceeds increase, there is a potential for future investment income from the investment. Distributions, once received, will be recognized as return of capital with any remaining unamortized investment costs written off if the actual distributions are less than the amortized investment cost.

See notes to consolidated financial statements.

PROSPECT FLEXIBLE INCOME FUND, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2020



							June 30, 2020 (Audited)
Portfolio Company / Security Type	Industry	Acquisition Date	Coupon/Yield (b)		Floor	Legal Maturity	Principal/ Quantity		Amortized Cost (d)		Fair Value (c)		% of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control):
Senior Secured Loans-First Lien^(j)(l)(n)
Amerilife Holdings, LLC (Delayed Draw - $85,227 Commitment) ^(g)(m)	Banking, Finance, Insurance & Real Estate	2/6/2020	1ML+4.00% (5.00%)		—	3/18/2027	$	—	$	—	$	—	—	%
Amerilife Holdings, LLC ^(g)	Banking, Finance, Insurance & Real Estate	2/6/2020	1ML+4.00% (4.17%)		—	3/18/2027	664,773		663,305		663,305		3.39	%
CareerBuilder ^(g)(k)	Services: Consumer	7/27/2017	3ML+6.75% (7.75%)		1.00	7/31/2023	969,272		901,368		880,423		4.50	%
Correct Care Solutions Group Holdings, LLC ^(g)(k)	Healthcare & Pharmaceuticals	4/2/2019	1ML+5.50% (5.67%)		—	10/1/2025	2,075,793		2,035,345		2,048,026		10.47	%
Digital Room Holdings, Inc^(g)(k)	Media: Broadcasting & Subscription	5/14/2019	6ML+5.00% (6.45%)		—	5/21/2026	1,980,000		1,952,387		1,871,800		9.57	%
GK Holdings, Inc.^(i)(o)	Media: Broadcasting & Subscription	1/30/2015	3ML+6.00% (7.94%)		1.00	1/20/2021	118,125		117,703		84,164		0.43	%
Global Tel*Link Corporation ^(g)(k)	Telecommunications	4/5/2019	1ML+4.25% (4.43%)		—	11/28/2025	1,977,393		1,921,693		1,846,242		9.44	%
Help/Systems Holdings, Inc. ^(g)	High Tech Industries	11/14/2019	3ML+4.75% (5.75%)		1.00	11/19/2026	1,496,250		1,482,527		1,482,957		7.58	%
Janus International Group, LLC ^(g)(k)	Construction & Building	7/9/2019	6ML+4.50% (5.57%)		1.00	2/12/2025	1,730,600		1,730,600		1,644,070		8.41	%
Keystone Acquisition Corp. ^(g)(k)	Healthcare & Pharmaceuticals	4/10/2019	3ML+5.25% (6.25%)		1.00	5/1/2024	2,076,742		2,051,467		2,076,741		10.62	%
McAfee LLC ^(g)	High Tech Industries	9/17/2017	1ML+3.75% (3.93%)		—	9/30/2024	240,445		238,500		234,868		1.20	%
The Octave Music Group, Inc.^(g)	Consumer goods: Durable	2/26/2020	1ML+5.25% (6.25%)		1.00	5/29/2025	743,534		736,490		705,287		3.61	%
PGX Holdings, Inc. ^(g)	Services: Consumer	4/2/2019	1ML+5.25% (6.25%)		1.00	9/29/2023	706,546		702,636		706,546		3.61	%
Quidditch Acquisition, Inc. ^(g)	Beverage, Food & Tobacco	3/16/2018	3ML+7.00% (7.31%)		1.00	3/21/2025	488,812		480,745		436,673		2.23	%
Research Now Group, Inc. & Survey Sampling International LLC ^(g)	Services: Business	4/2/2019	3ML+5.50% (6.50%)		1.00	12/20/2024	1,980,964		1,980,964		1,960,850		10.03	%
Rocket Software, Inc. ^(g)(k)	High Tech Industries	4/2/2019	1ML+4.25% (4.42%)		—	11/28/2025	2,075,854		2,059,014		2,038,281		10.42	%
Securus Technologies Holdings, Inc.^(g)(k)	Telecommunications	7/31/2019	1ML+4.50% (5.50%)		1.00	11/1/2024	1,979,695		1,826,159		1,734,200		8.87	%
Shutterfly, Inc.^(g)^(k)	Media: Diversified and Production	11/14/2019	3ML+6.00% (6.31%)		1.00	9/25/2026	1,741,935		1,574,165		1,644,000		8.41	%
Sorenson Communications, LLC ^(g)(k)	Services: Consumer	4/26/2019	3ML+6.50% (6.81%)		—	4/29/2024	1,357,940		1,343,057		1,347,829		6.89	%
Staples, Inc.^(g)(k)	Wholesale	11/18/2019	1ML+5.00% (6.31%)		—	4/16/2026	1,989,950		1,965,138		1,807,778		9.24	%
Transplace Holdings, Inc. ^(g)	Transportation: Cargo	4/10/2019	6ML+3.75% (4.82%)		1.00	10/7/2024	1,486,294		1,469,043		1,469,647		7.51	%
Upstream Newco, Inc.^(g)	Services: Consumer	10/24/2019	1ML+4.50% (4.68%)		—	11/20/2026	1,745,625		1,737,622		1,654,970		8.46	%
Vero Parent Inc. (Sahara) ^(g)	High Tech Industries	8/11/2017	3ML+6.25% (6.61%)		—	8/16/2024	340,436		337,697		314,904		1.61	%
Total Senior Secured Loans-First Lien									$	29,307,625	$	28,653,561	146.50	%

Senior Secured Loans-Second Lien^(j)(l)(n)
Encino Acquisition Partners Holdings, LLC ^(g)	Energy: Oil & Gas	9/25/2018	1ML+6.75% (7.75%)		1.00	10/29/2025	$	500,000	$	495,842	$	365,000	1.87	%
FullBeauty Brands Holding^(f)	Retail	2/7/2019	7%		—	1/31/2025	11,825		9,742		1,774		0.01	%
GK Holdings, Inc.^(i)(o)	Media: Broadcasting & Subscription	1/30/2015	3ML+10.25% (12.19%)		1.00	1/21/2022	125,000		123,498		75,624		0.39	%
Inmar, Inc. ^(g)	Media: Advertising, Printing&Publishing	4/25/2017	6ML+8.00% (9.07%)		1.00	5/1/2025	500,000		493,860		332,812		1.70	%
McAfee LLC ^(g)	High Tech Industries	9/27/2017	1ML+8.50% (9.50%)		1.00	9/29/2025	437,500		435,130		437,938		2.24	%
Total Senior Secured Loans-Second Lien									$	1,558,072	$	1,213,148	6.21	%

Senior Secured Notes ^(a)(j)(l)
Ace Cash Express, Inc.^(k)	Financial	12/8/2017	12.00	%	N/A	12/15/2022	$	1,000,000	$	955,986	$	811,267	4.15	%
Total Senior Secured Notes									$	955,986	$	811,267	4.15	%

Structured Subordinated Notes ^(a)(e)(j)(l)
Apidos CLO XXIV	Structured Finance	5/17/2019	20.83	%	N/A	10/20/2030	$	250,000	$	158,111	$	144,237	0.74	%
Apidos CLO XXVI	Structured Finance	7/25/2019	20.52	%	N/A	7/18/2029	250,000		176,714		171,189		0.88	%

PROSPECT FLEXIBLE INCOME FUND, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2020



							June 30, 2020 (Audited)
Portfolio Company / Security Type	Industry	Acquisition Date	Coupon/Yield (b)		Floor	Legal Maturity	Principal/ Quantity		Amortized Cost (d)		Fair Value (c)		% of Net Assets
California CLO IX, Ltd.	Structured Finance	12/13/2019	23.03	%	N/A	7/16/2032	500,000		183,350		219,316		1.12	%
Carlyle Global Market Strategies CLO 2014-4-R, Ltd.	Structured Finance	4/7/2017	16.89	%	N/A	7/15/2030	250,000		183,549		152,090		0.78	%
Carlyle Global Market Strategies CLO 2017-5, Ltd.	Structured Finance	12/18/2017	13.44	%	N/A	1/22/2030	500,000		480,053		388,680		1.99	%
Galaxy XIX CLO, Ltd.	Structured Finance	12/5/2016	15.57	%	N/A	7/24/2030	250,000		172,025		107,770		0.55	%
GoldenTree Loan Opportunities IX, Ltd.	Structured Finance	7/19/2017	14.57	%	N/A	10/29/2029	250,000		192,349		132,052		0.68	%
Madison Park Funding XIII, Ltd.	Structured Finance	11/6/2015	21.73	%	N/A	4/22/2030	250,000		174,573		163,995		0.84	%
Madison Park Funding XIV, Ltd.	Structured Finance	11/16/2015	14.66	%	N/A	10/22/2030	250,000		183,577		141,354		0.72	%
Octagon Investment Partners XIV, Ltd.	Structured Finance	12/1/2017	15.14	%	N/A	7/16/2029	850,000		540,175		412,590		2.11	%
Octagon Investment Partners XV, Ltd.	Structured Finance	5/23/2019	18.90	%	N/A	7/19/2030	500,000		284,052		261,483		1.34	%
Octagon Investment Partners XXI,Ltd.^(k)	Structured Finance	1/6/2016	13.69	%	N/A	2/14/2031	387,538		233,443		161,650		0.83	%
Octagon Investment Partners 30, Ltd.	Structured Finance	11/16/2017	12.72	%	N/A	3/17/2030	475,000		439,458		338,256		1.73	%
Octagon Investment Partners 31, Ltd.	Structured Finance	12/20/2019	30.01	%	N/A	7/20/2030	250,000		150,012		142,543		0.73	%
Octagon Investment Partners 36, Ltd.	Structured Finance	12/20/2019	24.76	%	N/A	4/15/2031	500,000		405,831		366,602		1.87	%
Octagon Investment Partners 39, Ltd.	Structured Finance	1/9/2020	23.29	%	N/A	10/21/2030	250,000		188,817		176,010		0.90	%
OZLM XII, Ltd.	Structured Finance	1/17/2017	0.33	%	N/A	4/30/2027	275,000		197,010		117,712		0.60	%
Sound Point CLO II, Ltd.	Structured Finance	5/16/2019	15.39	%	N/A	1/26/2031	1,500,000		870,827		675,904		3.45	%
Sound Point CLO VII-R, Ltd.	Structured Finance	8/23/2019	19.90	%	N/A	10/23/2031	150,000		60,832		51,653		0.25	%
Sound Point CLO XVIII, Ltd.	Structured Finance	5/16/2019	14.01	%	N/A	1/21/2031	250,000		236,191		204,742		1.05	%
THL Credit Wind River 2013-1 CLO, Ltd.	Structured Finance	11/1/2017	9.84	%	N/A	7/22/2030	325,000		241,512		145,769		0.75	%
Venture XXXIV CLO, Ltd.	Structured Finance	7/30/2019	17.97	%	N/A	10/15/2031	250,000		212,471		195,325		1.00	%
Voya IM CLO 2013-1, Ltd.^(k)	Structured Finance	6/9/2016	8.67	%	N/A	10/15/2030	278,312		190,763		136,471		0.70	%
Voya CLO 2016-1, Ltd.	Structured Finance	1/22/2016	15.31	%	N/A	1/21/2031	250,000		216,424		191,346		0.97	%
Total Structured Subordinated Notes^(e)									$	6,372,119	$	5,198,739	26.58	%

Equity/Other^(a)(j)(l)
FullBeauty Brands Holding, Common Stock^(h)(i)	Retail	2/7/2019	N/A		N/A	N/A	72		208,754		—		—	%
Total Equity/Other									$	208,754	$	—	—	%

Total Non-Control/Non-Affiliate Investments									$	38,402,556	$	35,876,715	183.44	%

Affiliate Investments (5.00% to 24.99% voting control):
Equity/Other^(a)(j)(l)
ACON IWP Investors I, L.L.C. ^(h)(i)	Healthcare & Pharmaceuticals	4/30/2015	N/A		N/A	N/A	$	472,357	$	472,357	$	786,988	4.02	%
Total Equity/Other									$	472,357	$	786,988	4.02	%

Total Affiliate Investments									$	472,357	$	786,988	4.02	%

Total Portfolio Investments									$	38,874,913	$	36,663,703	187.46	%

(a)

Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”). Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. Of the Company’s total investments as of June 30, 2020, 16% are non-qualifying assets as a percentage of total assets.

(b)

The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate ~~(“LIBOR”~~("LIBOR" or ~~“L”) or Prime Rate (“Prime” or “P”~~"L") which ~~reset daily,~~resets monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread over LIBOR or ~~Prime~~the prime lending rate ("Prime") and the current contractual interest rate in effect at ~~December 31, 2016.~~June 30, 2020. Certain investments are subject to a LIBOR or Prime interest rate floor. ~~As of December 31, 2016,~~The one-month ("1ML"), two-month ("2ML"), three-month ("3ML"), and six-month ("6ML") LIBOR rates are based on the ~~three-month London Interbank Offered Rate, or~~applicable LIBOR ~~was 0.99789%.~~rate for each investment on its reset date.


(c)	Fair value ~~and market value are~~is determined by the Company’s board of directors (see Note ~~7.)~~2).

~~(d)~~

~~Security held within TPJ Holdings, Inc., a wholly-owned subsidiary of the Company. See Note 2 for a discussion on the basis of consolidation.~~

~~(e)~~

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company’s total assets. As of December 31, 2016, 91.87% of the Company’s total assets represented qualifying assets.

~~(f)~~(d)

See Note 56 for a discussion of the tax cost of the portfolio.

(e) The structured subordinated notes and preference/preferred shares are considered equity positions in the Collateralized Loan Obligations (“CLOs”), which is referred to as "Subordinated Structured Notes", or "SSN". The CLO equity investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and

PROSPECT FLEXIBLE INCOME FUND, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2020

fund expenses. The current estimated yield is calculated using amortized cost based on the current projections of this excess cash flow taking into account assumptions which have been made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions.


(f)	This investment has contractual payment-in-kind (“PIK”) interest. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date.

(g)

Security is held by Prospect Flexible Funding, LLC, our SPV, and is pledged as collateral for the Credit Facility and such security is not available as collateral to our general creditors (see Note 11). The fair values of the investments held by the SPV at June 30, 2020 and June 30, 2019 were $29,705,147 and $15,859,230, respectively, representing 81% and 66% of our total investments, respectively.

(h)

Affiliated investment as defined by the 1940 Act, whereby the Company owns between 5% and 25% of the portfolio company’s outstanding voting securities and the investments are not classified as controlled investments. Affiliated funds that are managed by an affiliate of Triton Pacific Adviser, LLC also hold investments in this security. The aggregate fair value of non-controlled, affiliated investments at June 30, 2020 represented 4.02% of the Company’s net assets. Fair value as of June 30, 2020 along with transactions during the year ended June 30, 2020 in affiliated investments were as follows:

Non-controlled, Affiliated Investments Number
of
Shares Fair Value
at
June 30,
2019 Gross
Additions
(Cost)* Gross
Reductions
(Cost)** Unrealized
Change in
FMV Net Realized
Gain (Loss) Fair Value
at
June 30,
2020 Interest &
Dividends
Credited to
Income
ACON IWP Investors I, L.L.C. 472,357
$ 570,816
$ —
$ —
$ 216,172
—
$ 786,988
$ —

Total $ 570,816
$ —
$ —
$ 216,172
$ —
$ 786,988
$ —

(i) Represents non-income producing security that has not paid interest or dividends in the year preceding the reporting date.


(j)	Investments are valued using significant unobservable inputs and are categorized as Level 3 investments in accordance with ASC 820. See Notes 2 and 8 within the accompanying notes to the consolidated financial statements.


(k)	Acquisition date represents the date of FLEX's initial investment. Follow-on acquisitions have occurred on the following

dates to arrive at FLEX's current investment (excluding effects of capitalized PIK interest, premium/original issue discount

amortization/accretion, and partial repayments):

Portfolio Company Investment Follow-On Acquisition Dates Follow-On Acquisitions (Excluding initial investment cost)
Ace Cash Express, Inc. Senior Secured Notes 7/15/2019 $ 493,625
CareerBuilder Senior Secured Loans-First Lien 6/5/2020 690,000
Correct Care Solutions Group Holdings, LLC Senior Secured Loans-First Lien 4/10/2019, 7/25/2019 1,327,000
Digital Room Holdings, Inc Senior Secured Loans-First Lien 7/16/2019 490,000
Global Tel*Link Corporation Senior Secured Loans-First Lien 7/9/2019, 7/16/2019 1,436,250
Janus International Group, LLC Senior Secured Loans-First Lien 8/7/2019 1,498,125
Keystone Acquisition Corp. Senior Secured Loans-First Lien 4/23/2019, 8/2/2019 1,576,000
Octagon Investment Partners XXI, Ltd. Structured subordinated notes 2/14/19 35,015
Rocket Software, Inc. Senior Secured Loans-First Lien 6/28/2019, 7/30/2019 1,327,272
Securus Technologies Holdings, Inc. Senior Secured Loans-First Lien 8/2/2019 908,750
Shutterfly, Inc. Senior Secured Loans-First Lien 11/18/2019, 11/20/2019 1,361,250
Sorenson Communications, LLC Senior Secured Loans-First Lien 5/27/2020 985,000
Staples, Inc. Senior Secured Loans-First Lien 2/3/2020 980,031
Voya IM CLO 2013-1, Ltd. Structured subordinated notes 10/17/2017, 7/1/2019 20,584


(l)	None of the investments qualify as restricted securities in accordance with Rule 12-12 of Regulation S-X.


(m)	Delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 4.00%. As of June 30, 2020, we had $85,227 of delayed draw term loan commitments to our portfolio companies. There were no delayed draw term loan commitments as of June 30, 2019.


(n)	Syndicated investments which were originated by a financial institution and broadly distributed.


(o)	Investment on non-accrual status as of the reporting date (see Note 2).

See notes ~~are an integral part of these~~to consolidated financial statements.

~~Table of Contents~~

~~Triton Pacific Investment Corporation, Inc.~~

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- (Unaudited)

September 30, 2020

NOTE 1 ~~– DESCRIPTION~~- NATURE OF ~~BUSINESS~~

OPERATIONS

Prospect Flexible Income Fund, Inc. (formerly known as Triton Pacific Investment Corporation, Inc. and TP Flexible Income Fund, Inc.) (the “Company”, "FLEX", “our”, “us”, “we”), incorporated in Maryland on April 29, 2011, is ~~publicly registered, non-traded fund focused on private equity, structured~~an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Our investment objective is to generate current income and, as a secondary objective, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. We intend to meet our investment objective by primarily lending to and investing in the debt of privately-owned U.S. middle market companies, which we define as companies with annual revenue between $50 million and $2.5 billion. We expect that at least 70% of our portfolio of investments will consist primarily ~~makes structured~~of syndicated senior secured first lien loans, syndicated senior secured second lien loans, and to a lesser extent, subordinated debt, and that up to 30% of our portfolio of investments will consist of other securities, including private equity (both common and preferred), dividend-paying equity, royalties, and the equity and junior debt ~~investments in small~~tranches of a type of pools of broadly syndicated loans known as collateralized loan obligations ("CLOs"), which we also refer to ~~mid-sized private U.S. companies. Structured equity refers to derivative investment products, including convertible~~as subordinated structured notes ~~and warrants, designed to facilitate highly customized risk-return objectives.~~("SSNs"). Pursuant to ~~the~~our Articles of Incorporation, as amended, restated and supplemented, the Company is authorized to issue 75,000,000 shares of common stock with a par value of $0.001 per share. Additionally, the Company is authorized to issue 25,000,000 shares of preferred stock with a par value of $0.001 per share. The Company is currently offering for sale a maximum of $300,000,000 of shares of common stock on a “best efforts” basis pursuant to a registration statement on Form N-2 filed with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended, that is dated and became effective on October 27, 2020 (the “Offering”). The Company's initial registration statement on Form N-2 was declared effective on September 4, 2012 and the Company commenced the Offering on such date. On June 25, 2014, the Company met its minimum offering requirement of $2,500,000 and released all shares held in escrow.

On March 31, 2019, Pathway Capital Opportunity Fund, Inc. (“PWAY”) merged with and into us (the “Merger”). As the combined surviving company, we were renamed TP Flexible Income Fund, Inc. (we were formerly known as Triton Pacific Investment Corporation, Inc. (“TPIC”)). In connection with the Merger, Prospect Flexible Income Management, LLC (the "Adviser"), an affiliate of PWAY, became our investment adviser, and Prospect Administration LLC, an affiliate of the Adviser, became our administrator. Although PWAY merged into us in connection with the Merger, PWAY is considered the accounting survivor of the Merger and its historical financial statements are included and discussed in this report. The Company invests either alone or together with other private equity sponsors. The Company is an externally managed, non-diversified closed-end investment company that has elected to be treated as a business development company, or BDC, under the Investment Company Actadopted PWAY’s fiscal year end of ~~1940, or~~June 30.

On and effective August 5, 2020, the Company ~~Act. As a BDC, the Company is required~~changed its name to ~~comply with certain regulatory requirements. The Company has elected~~Prospect Flexible Income Fund, Inc. from TP Flexible Income Fund, Inc. by filing Articles of Amendment to ~~be treated for U.S. federal income tax purposes,~~its Fourth Articles of Amendment and ~~intends to annually qualify as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue code of 1986,~~Restatement, as amended or the Code. The Company has one wholly-owned subsidiary through which it holds interest in a non-controlled, affiliated portfolio company. The consolidated financial statements include both the Company’s accounts and the accounts of its wholly-owned subsidiary. All significant intercompany transactions have been eliminated in consolidation. The Company’s consolidated subsidiary is subject to U.S. federal and state income taxes. No taxes were accrued or paid by the wholly-owned subsidiary for the three and nine months ended September 30, 2017 and 2016.

Triton Pacific Adviser, LLC (“Adviser”) serves as the Investment Adviser and TFA Associates, LLC (“TFA”) serves as the Administrator. Each of these entities are affiliated with Triton Pacific Group, Inc., a private equity investment management firm, and its subsidiary Triton Pacific Capital Partners, LLC, a private equity investment fund management company, each focused on debt and equity investments for small to mid-sized private companies.

supplemented.

The Adviser was formed in Delaware as a private investment management firm and is registered as an investment adviser with the ~~Securities and Exchange Commission (“SEC”)~~SEC under the Investment Advisers Act of 1940, as amended, or the Advisers Act. The Adviser oversees the management of ~~the Company’s~~our activities and is responsible for making the investment decisions with respect to our investment portfolio, subject to the oversight of our board of directors.

On May 16, 2019, we formed a wholly-owned subsidiary TP Flexible Funding, LLC (the “SPV”), a Delaware limited liability company and a bankruptcy remote special purpose entity, which holds certain of our portfolio loan investments that are used as collateral for the ~~portfolio.~~

revolving credit facility at the SPV. This subsidiary has been consolidated since operations commenced. On and effective August 5, 2020, the Company changed the name of the SPV to Prospect Flexible Funding, LLC.

NOTE 2 ~~– SUMMARY OF~~- SIGNIFICANT ACCOUNTING POLICIES

Basis of ~~Presentation.~~~~These~~Presentation and Consolidation. The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ~~generally accepted in the United States of America~~ (“GAAP”) pursuant to the requirements for ~~interim financial information, including accounting for investment companies under~~reporting on Form 10-Q, ASC ~~Topic~~946, Financial Services - Investment Companies (“ASC 946”), and Articles 6, 10 and 12 of Regulation S-X. Under the 1940 Act, ASC 946, and the ~~rules and~~ regulations pursuant to Article 6 of ~~the Securities and Exchange Commission for interim financial statements. These~~Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Our consolidated financial statements ~~reflect all adjustments~~include the accounts of FLEX and ~~accruals of a normal recurring nature that,~~the SPV. All intercompany balances and transactions have been eliminated in consolidation.

Reclassifications. Certain reclassifications have been made in the ~~opinion~~presentation of ~~management, are necessarily indicative of results expected for any future period. These interim, unaudited~~prior consolidated financial statements and ~~related~~accompanying notes ~~should be read in conjunction with~~to conform to the ~~financial statements~~presentation as of and ~~related notes included in the Company’s annual report on Form 10-K~~ for the ~~year~~three months ended ~~December 31, 2016.~~September 30, 2020.

Management Estimates and Assumptions.The preparation of ~~unaudited~~the consolidated financial statements in ~~conformity~~accordance with GAAP requires ~~management~~us 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 consolidated financial statements and the reported amounts of ~~revenues~~income, expenses, and ~~expenses~~gains and losses during the ~~reporting~~reported period. ~~Actual~~Changes in

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

the economic environment, financial markets, creditworthiness of the issuers of our investment portfolio and any other parameters used in determining these estimates could cause actual results to differ, and these differences could ~~differ from those estimates.~~

be material.

~~Table of Contents~~

Cash.All cash balances are maintained with high credit quality financial institutions which are members of the Federal Deposit Insurance Corporation. ~~The Company maintains cash balances that~~Cash held at financial institutions, at times, may exceed ~~federally~~the Federal Deposit Insurance Corporation ("FDIC") insured ~~limits.~~limit.

Valuation of Portfolio Investments.The Company determines the ~~net asset~~fair value of its investment portfolio each quarter. Securities that are publicly-traded are valued at the reported closing price on the valuation date. Securities that are not publicly-traded are valued at fair value as determined in good faith by the Company’s board of directors. In connection with that determination, the Adviser provides the Company’s board of directors with portfolio company valuations which are based on relevant inputs which may include indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and also may include valuations prepared by third-party valuation services.

~~Accounting Standards Codification Topic 820,~~~~Fair Value Measurements and Disclosure~~, or ASC Topic 820, issued by the Financial Accounting Standards Board, clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

~~With respect to investments for which market quotations are not readily available, the Company undertakes a multi-step valuation process each quarter, as described below:~~

●

the Company’s quarterly valuation process begins with the Adviser’s management team providing a preliminary valuation of each portfolio company or investment to the Company’s board of directors, which valuation may be obtained from an independent valuation firm or Adviser, if applicable;

●

~~preliminary valuation conclusions are then documented and discussed with the Company’s board of directors;~~

●

the Company’s board of directors reviews the preliminary valuation and the Adviser’s management team, together with its independent valuation firm, if applicable, responds and supplements the preliminary valuation to reflect any comments provided by the board of directors; and

●

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

Determination of fair value involves subjective judgments and estimates. Accordingly, these notes to the Company’s financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on the Company’s financial statements. Below is a description of factors that the Company’s board of directors may consider when valuing the Company’s debt and equity investments.

Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, the Company may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that the Company’s board of directors may consider include the borrower’s ability to adequately service its debt, the fair market value of the portfolio company in relation to the face amount of its outstanding debt and the quality of collateral securing the Company’s debt investments. The determination of fair market value for the equity positions were determined by considering, among other factors, various income scenarios and multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues, waterfall and liquidation priority and market comparables, book value multiples, economic profits and portfolio multiples.

~~Table of Contents~~

The fair values of the Company’s investments are determined in good faith by the Company’s board of directors. The Company’s board of directors is solely responsible for the valuation of the Company’s portfolio investments at fair value as determined in good faith pursuant to the Company’s valuation policy and consistently applied valuation process.

~~Revenue Recognition.~~~~Security transactions~~

In connection with that determination, the Adviser provides the Company’s board of directors with portfolio company valuations which are ~~accounted~~based on relevant inputs which may include indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by third-party valuation services.

We follow guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which classifies the inputs used to measure fair values into the following hierarchy:

Level 1. Unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access 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 an inactive market, or other observable inputs other than quoted prices.

Level 3. Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.

Securities that are publicly-traded are valued at the reported closing price on the valuation date. Securities traded in the over-the-counter market are valued by an independent pricing agent or more than one principal market maker, if available, otherwise a principal market maker or a primary market dealer. We value over-the-counter securities by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent pricing agent and screened for validity by such service. As a result of the volatility and disruption to the global economy from the Wuhan Virus pandemic (as further discussed in Note 8), certain market quotations were not deemed to represent fair value.

When market quotations are not readily available or when such market quotations are deemed not to represent fair value, our board of directors has approved a multi-step valuation process for each quarter, as described below, and such investments are classified in Level 3 of the fair value hierarchy:


1.	Each portfolio company or investment is reviewed by investment professionals of the Adviser with the independent valuation firms engaged by our board of directors.


2.	The independent valuation firms prepare independent valuations based on their own independent assessments and issue their reports.


3.	The audit committee of our board of directors (the “Audit Committee”) reviews and discusses with the independent valuation firms the valuation reports, and then makes a recommendation to our board of directors of the value for each investment.


4.	Our board of directors discusses valuations and determines the fair value of such investments in our portfolio in good faith based on the input of the Adviser, the respective independent valuation firms and the Audit Committee.

Our non-CLO investments are classified as Level 3 fair value measured securities under ASC 820 and are valued utilizing broker quotes, yield technique, enterprise value (“EV”) technique, net asset value technique, liquidation technique, discounted cash flow technique, or a combination of techniques, as appropriate. The yield technique uses loan spreads for loans and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV technique, the EV of a portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation). To determine the EV, we typically use a market (multiples) valuation approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions, and/or a discounted cash flow technique. The net asset value technique, an income approach, is used to derive a value of an underlying investment by dividing a relevant earnings stream by an appropriate capitalization rate. The

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

liquidation technique is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow technique converts future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The fair value measurement is based on the net present value indicated by current market expectations about those future amounts.

The types of factors that are taken into account in fair value determination include, as relevant, market changes in expected returns for similar investments, performance improvement or deterioration, security covenants, call protection provisions, and information rights, the nature and realizable value of any collateral, the issuer’s ability to make payments and its earnings and cash flows, the principal markets in which the issuer does business, publicly available financial ratios of peer companies, comparisons to traded securities, the principal market, enterprise values, and other relevant factors.

Our investments in CLOs are classified as Level 3 fair value measured securities under ASC 820 and are valued using a discounted multi-path cash flow model. The CLO structures are analyzed to identify the risk exposures and to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows from the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market as well as certain benchmark credit indices are considered, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the multi-path cash flows. We are not responsible for and have no influence over the asset management of the portfolios underlying the CLO investments we hold, as those portfolios are managed by non-affiliated third-party CLO collateral managers. The main risk factors are default risk, prepayment risk, interest rate risk, downgrade risk, and credit spread risk.

Valuation of Other Financial Assets and Financial Liabilities.

ASC 825, Financial Instruments, specifically ASC 825-10-25, permits an entity to choose, at specified election dates, to measure eligible items at fair value (the "Fair Value Option"). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. See Note 11 for the disclosure of the fair value of our outstanding debt and the market observable inputs used in determining fair value.

Investment Risks

Our investments are subject to a variety of risks. Those risks include the following:

Market Risk

Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument.

Credit Risk

Credit risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us.

Liquidity Risk

Liquidity risk represents the possibility that we may not be able to rapidly adjust the size of our investment positions in times of high volatility and financial stress at a reasonable price.

Interest Rate Risk

Interest rate risk represents a change in interest rates, which could result in an adverse change in the fair value of an interest-bearing financial instrument.

Prepayment Risk

Many of our debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the security and making us less likely to fully earn all of the expected income of that security and reinvesting in a lower yielding instrument.

Structured Credit Related Risk

CLO investments may be riskier and less transparent to us than direct investments in underlying companies. CLOs typically will have no significant assets other than their underlying senior secured loans. Therefore, payments on CLO investments are and will be payable solely from the cash flows from such senior secured loans.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

Investment Classification. We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, “Control Investments” are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of more than 25% of the voting securities of an investee company. Under the 1940 Act, “Affiliate Investments” are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments.

As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). As of September 30, 2020 and June 30, 2020, our qualifying assets as a percentage of total assets, stood at 84.88% and 83.78%, respectively.

Investment Transactions. Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade ~~date. The Company records interest~~date basis. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. Amounts for investments traded but not yet settled are reported in Payable for investments purchased and Receivable for investments sold on the Consolidated Statements of Assets and Liabilities.

Revenue Recognition. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual ~~basis to~~basis. Accretion of such purchase discounts or amortization of such premiums is calculated using the ~~extent it expects to collect such amounts.~~effective interest method as of the settlement date and adjusted only for material amendments or prepayments. Upon the prepayment of a loan or bond, any unamortized discount or premium is recorded as interest income. The Company records dividend income on the ex-dividend date. The Company does not accrue as a receivable interest or dividends on loans and securities if it has reason to doubt its ability to collect such income. Loans are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Unpaid accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans are either applied to the cost basis or interest income, depending upon management’s judgment of the collectibility of the loan receivable. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management’s judgment, is likely to remain current and future principal and interest collections when due are probable. Interest received and applied against cost while a loan is on non-accrual, and PIK interest capitalized but not recognized while on non-accrual, is recognized prospectively on the effective yield basis through maturity of the loan when placed back on accrual status, to the extent deemed collectible by management. As of September 30, 2020 and June 30, 2020, the Company had two loans on non-accrual status. Loan origination fees ~~original issue discount and market discount~~ are capitalized and the Company ~~amortizes~~accretes such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees ~~and original issue discount~~ are recorded as interest income. Upfront structuring fees are recorded as fee income when earned. The Company records prepayment premiums on loans and securities as fee income when it receives such amounts.

Some of our loans and other investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, we capitalize the accrued interest (reflecting such amounts in the basis as additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point that we believe PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. We do not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if we believe that PIK is expected to be realized.

~~Paid-In-Kind Interest.~~Interest income from investments in Structured Subordinated Notes (typically preferred shares, income notes or subordinated notes of CLO funds) is recorded based on an estimation of an effective yield to expected maturity utilizing assumed future cash flows in accordance with ASC 325-40, Beneficial Interest in the Securitized Financial Assets. The ~~company~~Company monitors the expected cash inflows from CLO equity investments, including the expected residual payments, and the estimated effective yield is determined and updated periodically.

Due from and to Adviser. Amounts due from the Adviser are for amounts waived under the ELA (as such term is defined in Note 4) and amounts due to the Adviser are for base management fees, incentive fees, operating expenses paid on our behalf and offering and organization expenses paid on our behalf. The due from and due to Adviser balances are presented net on the Consolidated Statements of Assets and Liabilities as of September 30, 2020and as of June 30, 2020. All balances due from and to the Adviser are settled quarterly.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

Payment-In-Kind Interest. The Company has certain investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision, which represents contractual interest or dividends that are added to the principal balance and recorded as income. For the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, PIK interest included in interest income ~~included $0~~totaled $7,507 and ~~$9,540 of PIK interest, respectively. For the nine months ended September 30, 2017 and 2016, interest income included $19,488 and $27,994 of PIK interest,~~$29, respectively. The Company stops accruing PIK interest when it is determined that PIK interest is no longer collectible. ~~As of July 1, 2017, the Company has stopped accruing PIK interest on the subordinated convertible note made by Javlin Financial LLC.~~ To maintain RIC tax treatment, and to avoid corporate tax, substantially all of this income must be paid out to the stockholders in the form of distributions, even though the Company has not yet collected the cash.

Offering Costs and Expenses. The Company will incur certain costs and expenses in connection with registering to sell shares of its common stock. These costs and expenses principally relate to certain costs and expenses for advertising and sales, printing and marketing costs, professional and filing fees. Offering costs incurred by the Company are capitalized to deferred offering costs on the Consolidated Statements of Assets and Liabilities and amortized to expense over the 12 month period following such capitalization on a straight line basis.

Dividends and Distributions. Dividends and distributions to common stockholders are recorded on the record date. The amount, if any, to be paid as a monthly dividend or distribution is approved by our board of directors quarterly and generally depends on our earnings, financial condition, maintenance of our tax treatment as a RIC, compliance with applicable BDC regulations and such other factors as our Board deems relevant from time to time. Net realized capital gains, if any, are distributed at least annually.

Financing Costs. We record origination expenses related to our Revolving Credit Facility as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation of our Revolving Credit Facility. (See Note 11 for further discussion).

Per Share Information. Net increase or decrease in net assets resulting from operations per share is calculated using the weighted average number of common shares outstanding for the period presented. As of September 30, 2020, there were no issued convertible securities.

Net Realized ~~Gains or Losses,~~ and Net Change in Unrealized ~~Appreciation~~Gains or ~~Depreciation.~~Losses. Gains or losses on the sale of investments are calculated by using the specific identification method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees. 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 gains or losses when gains or losses are realized.

~~Capital Gains Incentive Fees.~~ The Company has entered into an investment advisory agreement with the Adviser dated as of July 27, 2012. Pursuant to the terms of the investment advisory agreement, the Incentive Fee shall be determinedFederal and payable in arrears as of the end of each quarter, upon liquidation of the Company or upon termination of this Agreement, as of the termination date, and shall equal 20.0% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of each quarter, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid Incentive Fees. There was no fee earned for the three months ended September 30, 2017. The fee for the nine months ended September 30, 2017 was ($334), of which ($13,124) was for Incentive Fees calculated on unrealized gains.

For purposes of calculating the foregoing: (1) the calculation of the Incentive Fee shall include any capital gains that result from cash distributions that are treated as a return of capital; (2) any such return of capital shall be treated as a decrease in the Company’s cost basis of an investment; and (3) all fiscal year-end valuations shall be determined by the Company in accordance with generally accepted accounting principles, applicable provisions of the Company Act (even if such valuation is made prior to the date on which the Company has elected to be regulated as a BDC) and the Company’s pricing procedures. In determining the Incentive Fee payable to the Adviser, the Company will calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each of the investments in its portfolio. For this purpose, aggregate realized capital gains, if any, will equal the sum of the differences between the net sales price of each investment, when sold, and the original cost of such investment since inception. Aggregate realized capital losses will equal the sum of the amounts by which the net sales price of each investment, when sold, is less than the cost of such investment since inception. Aggregate unrealized capital depreciation will equal the sum of the difference, if negative, between the valuation of each investment as of the applicable date and the original cost of such investment. At the end of the applicable period, the amount of capital gains that serves as the basis for the Company’s calculation of the Incentive Fees will equal the aggregate realized capital gains less aggregate realized capital losses and less aggregate unrealized capital depreciation with respect to its portfolio of investments. If this number is positive at the end of such period, then the Incentive Fees for such period will be equal to 20% of such amount, less the aggregate amount of any Incentive Fees paid in respect of its portfolio in all prior periods.

~~Table of Contents~~

~~Offering Costs.~~The Company will incur certain expenses in connection with registering to sell shares of its common stock in connection with the Offering. These costs principally relate to professional and filing fees. Upon recognition or repayment to the Adviser of these costs, they will be capitalized as deferred offering expenses and then subsequently expensed over a 12-month period. The Adviser may reimburse the Company for all or part of these amounts pursuant to the Expense Support and Conditional Reimbursement Agreement (“Expense Reimbursement Agreement”) discussed below. As of September 30, 2017, and December 31, 2016, $3,314,687 and $2,765,662, respectively, of offering costs have been reclassified and included as part of the Expense Reimbursement Agreement and accordingly included in Reimbursement due from the Adviser.

~~Distributions.~~Distributions to the Company’s stockholders are recorded as of the record date. Subject to the discretion of the Company’s board of directors and applicable legal restrictions, the Company intends to authorize and declare ordinary cash distributions on a monthly basis and pay such distributions on a monthly basis.

State Income Taxes.The Company has elected to be treated ~~for federal income tax purposes, and intends to annually qualify thereafter,~~ as a regulated investment company (“RIC”) under Subchapter M of the ~~Code. Generally,~~Internal Revenue Code of 1986, as amended (the “Code”), and intends to continue to comply with the requirements of the Code applicable to RICs. As a RIC, the Company is ~~exempt from federal income taxes if it distributes~~required to distribute at least 90% of “Investment Company Taxable Income,” as defined in the Code, each year. Dividends paid up to 8.5 months after the current tax year can be carried back to the prior tax year for determining the dividends paid in such tax year. The Companyits investment company taxable income and intends to distribute ~~sufficient~~(or retain through a deemed distribution) all of its investment company taxable income and net capital gain to stockholders; therefore, the Company has made no provision for income taxes. The character of income and gains that the Company will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to ~~maintain its RIC status each year. The~~paid-in capital.

If the Company ~~is also subject to nondeductible federal excise taxes if it~~ does not distribute (or is not deemed to have distributed) at least 98% of ~~net~~its annual ordinary income and 98.2% of its net capital ~~gain~~gains in the calendar year earned, it will generally be required to pay an excise tax equal to 4% of the amount by which 98% of its annual ordinary income and 98.2% of its capital gains exceeds the distributions from such taxable income for the year. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, it accrues excise taxes, if any, ~~and~~on estimated excess taxable income. As of September 30, 2020, the Company does not expect to have any ~~recognized and undistributed~~excise tax due for the 2020 calendar year. Thus, the Company has not accrued any excise tax for this period.

If the Company fails to satisfy the annual distribution requirement or otherwise fails to qualify as a RIC in any taxable year, it would be subject to tax on all of its taxable income ~~from prior years for which it paid no federal excise tax.~~at regular corporate income tax rates. The Company ~~will~~would not be able to deduct distributions to stockholders, nor would it be required to make distributions. Distributions would generally ~~endeavor each~~be taxable to the Company’s individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of its current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, ~~to avoid any federal excise taxes.~~

~~GAAP requires management to evaluate tax positions taken by~~ the Company would be required to distribute to its shareholders its accumulated earnings and ~~recognize a tax liability~~profits attributable to non-RIC years. In addition, if the Company ~~has taken an~~failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, it would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

The Company follows ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain ~~position that more likely than not would not be sustained upon examination by the Internal Revenue Service or other tax authorities. Management has analyzed the~~ tax positions ~~taken by~~should be recognized, measured, presented, and disclosed in the ~~Company, and has concluded that as~~consolidated financial statements. ASC 740 requires the evaluation of ~~September 30, 2017 and 2016, there are no uncertain~~tax positions taken or expected to be taken ~~that would require recognition of a liability or disclosure~~ in the ~~financial statements. The~~course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of September 30, 2020, the Company isdid not record any unrecognized tax benefits or liabilities. Management’s determinations regarding ASC 740 may be subject to ~~routine audits~~review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although the Company files both federal and state income tax returns, its major tax jurisdiction is federal. The Company’s federal tax returns for the tax years ended December 31, 2017 and thereafter remain subject to examination by the Internal Revenue ~~Service or other tax authorities, generally for three years after the tax returns are filed; however, there are currently no audits for any tax periods in progress.~~

Service.

Recent Accounting ~~Pronouncements.~~

Pronouncements

In ~~January 2016,~~March 2020, the FASB issued ASU ~~2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition~~2020-04, Reference Rate Reform. The amendments in ASU 2020-04 provide optional expedients and ~~Measurement of Financial Assets~~exceptions for applying GAAP to contracts, hedging relationships, and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation ofother transactions affected by reference rate reform if certain ~~fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance~~criteria are met. The standard is effective ~~for annual and interim periods beginning after~~as of March 12, 2020 through December ~~15, 2017, and early adoption is not permitted for public business entities.~~31, 2022. Management is currently evaluating the impact ~~these changes will have~~of the optional guidance on the ~~Company’s~~Company's consolidated financial statements and disclosures.

The Company did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the three months ended September 30, 2020.

~~Table of Contents~~

In ~~March 2016,~~August 2018, the FASB issued ASU ~~2016-08, Revenue from Contracts with Customers~~No. 2018-13, Fair Value Measurement (Topic ~~606)~~820): ~~Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarified~~Disclosure Framework-Changes to the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarified the implementation guidance regarding performance obligations and licensing arrangements.Disclosure Requirements for Fair Value Measurement. The ~~new~~ standard will ~~become effective~~modify the disclosure requirements for ~~the Company on January 1, 2018, with early application permitted to the effective date of January 1, 2017. The Company is evaluating the effect that~~fair value measurements by removing, modifying, or adding certain disclosures. ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. The guidance does not apply to revenue associated with financial instruments, including loans and notes that are accounted for under other U.S. GAAP. As a result, the Company does not expect the new revenue recognition guidance to have a material impact on the elements of its consolidated statements of operations, most closely associated with financial instruments, including realized gains, fees, interest and dividend income. The Company plans to adopt the revenue recognition guidance in the first quarter of 2018. The Company’s implementation efforts include the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts and related accounting policies. While the Company has not yet identified any material changes in the timing of revenue recognition, the Company’s review is ongoing, and it continues to evaluate the presentation of certain contract costs.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU further clarifies how the predominance principle should be applied to cash receipts and payments relating to more than one class of cash flows. The ASUNo. 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted upon issuance of this ASU. The effectiveness of the amended guidance in ASU 2018-13 did not have a material effect on our consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the financial instruments impairment guidance so that an entity is required to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance in FASB ASC Subtopic No. 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, related to the subsequent measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets under the effective yield method. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those ~~annual periods,~~fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, ~~2017.~~2018, including interim periods within those fiscal years. The effectiveness of the amended guidance in ASU 2016-13 did not have a material effect on our consolidated financial statements and disclosures.

Tax Cuts and Jobs Act

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the “TaxAct”), which significantly changed the Code, including, a reduction in the corporate income tax rate, a new limitation on the deductibility of interest expense, and significant changes to the taxation of income earned from foreign sources and foreign subsidiaries. The Tax Act also authorizes the IRS to issue regulations with respect to the new provisions.We cannot predict how the changes in the Tax and Jobs Act, or regulations or other guidance issued under it, might affect us, our business or the business of our portfolio companies. However,our portfolio companies may or may not make certain elections under the Tax Act that could materially increase their taxable earnings and profits. Any such increase in the earnings and profits of a portfolio company may result in the characterization of certain distributions sourced from sale proceeds as dividend income, which may increase our distributable taxable income. Additional uncertainty is ~~to be applied retrospectively for each period presented. The Company is currently evaluating~~anticipated particularly in light of the current presidential election in the United States and the impact ~~this ASU will~~the presidential and congressional elections may have on federal regulation and taxation. We will continue to monitor and account for the ~~Company’s consolidated statement~~future impacts of ~~cash flows.~~

federal regulatory and state guidance in the interim period in which such additional guidance is issued.

NOTE 3 –- SHARE TRANSACTIONS

Below is a summary of transactions with respect to shares of ~~the Company’s~~ common stock of FLEX during the ~~nine~~three months ended September 30, ~~2017~~2020 and ~~2016:~~

Nine months ended September 30,
2017 2016
Shares Amount Shares Amount
Gross proceeds from Offering 362,028.61 $ 5,320,227 341,456.57 $ 5,109,288
Reinvestment of Distributions 16,105.02 214,336 11,178.05 155,067
Commissions and Dealer Manager Fees — (502,640 ) — (438,556 )
Net Proceeds to Company from Share Transactions 378,133.63 $ 5,031,923 352,634.62 $ 4,825,798

2019:

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019

FLEX Class A Common Shares FLEX Class A Common Shares
Shares Amount Shares Amount
Shares issued 27,815 $251,000 2,197 $25,000
Shares issued through reinvestment of distributions 22,753 189,344 19,932 213,293
Repurchase of common shares (28,786) (237,488) — —
Net increase from capital transactions 21,782 $202,856 22,129 $238,293

Status of Continuous Public Offering

During the nine months ended September 30, 2017 and 2016, the Company sold 362,028.61 and 341,456.57 shares of common stock, respectively, for gross proceeds of approximately $5,320,227 and $5,109,288, at an average price per share of $14.70 and $14.96, respectively. The increase in Capital in excess of par during the nine months ended September 30, 2017 and 2016 include reinvested stockholder distributions of $214,336 and $155,067, respectively, for which the Company issued 16,105.02 and 11,178.05 shares of common stock, respectively.

The proceeds from the issuance of common stock as presented on the accompanying ~~statements~~Consolidated Statements of ~~changes~~Changes in ~~net assets~~Net Assets and ~~statements~~Consolidated Statements of ~~cash flows~~Cash Flows are presented net of selling commissions and dealer manager ~~fees~~fees. The tables above are presented gross of ~~$502,640~~selling commissions and ~~$438,556~~dealer manager fees for the ~~nine~~three months ended September 30, ~~2017~~2020 and ~~2016, respectively.~~

2019.

The net increase (decrease) from capital transactions during the three months ended September 30, 2020 and 2019 also includes reinvested stockholder distributions as noted in the tables above.

~~Table of Contents~~

Share Repurchase Program

The Company intends to continue to conduct quarterly tender offers pursuant to its share repurchase program. The Company’s board of directors will consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares of common stock and under what terms:

●

~~the effect of such repurchases on the Company’s qualification as a RIC (including the consequences of any necessary asset sales);~~

●

~~the liquidity of the Company’s assets (including fees and costs associated with disposing of assets);~~

●

~~the Company’s investment plans and working capital requirements;~~

●

~~the relative economies of scale with respect to the Company’s size;~~

●

~~the Company’s history in repurchasing shares of common stock or portions thereof; and~~

●

~~the condition of the securities markets.~~

the effect of such repurchases on the Company’s qualification as a RIC (including the consequences of any necessary asset sales);

the liquidity of the Company’s assets (including fees and costs associated with disposing of assets);

the Company’s investment plans and working capital requirements;

the relative economies of scale with respect to the Company’s size;

the Company’s history in repurchasing shares of common stock or portions thereof; and

the condition of the securities markets.

The Company currently intends to limit the number of shares of common stock to be repurchased during any calendar year to the number of shares of common stock it can repurchase with the proceeds it receives from the issuance of shares of common stock under its distribution reinvestment plan. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase shares of common stock. In addition, the Company will limit the number of shares of common stock to be repurchased in any calendar year to 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter, though the actual number of shares of common stock that the Company offers to repurchase may be less in light of the limitations noted above.

Our board of directors reserves the right, in its sole discretion, to limit the number of shares to be repurchased for each class by applying the limitations on the number of shares to be repurchased, noted above, on a per class basis. We further anticipate that we will offer to repurchase such shares on each date of repurchase at a price equal to ~~90% of~~ the current net offering price on each date of repurchase. If the amount of repurchase requests exceeds the number of shares we seek to repurchase, we will repurchase shares on a pro-rata basis. As a result, we may repurchase less than the full amount of shares that ~~shareholders~~stockholders submit for repurchase. If we do not repurchase the full amount of the shares that ~~shareholders~~stockholders have requested to be repurchased, or we determine not to make repurchases of our shares, ~~shareholders~~stockholders may not be able to dispose of their shares. Any periodic repurchase offers will be subject in part to our available cash and compliance with the ~~Company~~1940 Act.

Special Repurchase Offer

At the 2019 Annual Meeting of TPIC's stockholders (the "2019 Annual Meeting"), TPIC’s stockholders approved a proposal allowing us to modify our asset coverage ratio requirement from 200% to 150%. Because our securities are not listed on a national securities exchange, pursuant to the requirements of the Small Business Credit Availability Act (the "SBCAA") we were required to conduct four quarterly tender offers (the "Special Repurchase Offer" or "Special Repurchase Offers") that, taken together, allowed all of the former stockholders of TPIC (the "Eligible Stockholders") as of March 15, 2019, the date of the 2019 Annual Meeting, to have those shares that such Eligible Stockholders held as of that date to be repurchased by us. PWAY stockholders who became our stockholders in connection with the Merger were not eligible to participate in these Special Repurchase Offers.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

In addition, shares of our common stock acquired after the date of the 2019 Annual Meeting were not eligible for repurchase in these Special Repurchase Offers. These Special Repurchase Offers were separate and apart from our share repurchase program discussed above.

The ~~following table provides~~Special Repurchase Offer consisted of four quarterly tender offers, the first of which occurred in the second calendar quarter of 2019, the second of which occurred in the third calendar quarter of 2019, the third of which occurred in the fourth calendar quarter of 2019 and the last of which occurred in the first calendar quarter of 2020. Each of the four tender offers that were part of the Special Repurchase Offer allowed the Eligible Stockholders to tender for repurchase up to 25% of their shares held as of the date of the 2019 Annual Meeting. The repurchase price for any shares tendered during the Special Repurchase Offer was equal to the net asset value per share of our common stock as of the date of each such repurchase.

In connection with each tender offer that was part of the Special Repurchase Offer, we provided notice to all Eligible Stockholders describing the terms of the Special Repurchase Offer and other information ~~concerning~~such Eligible Stockholders should consider in deciding whether to tender their shares to us in the ~~Company’s repurchase~~Special Repurchase Offer. These documents are available on our website at www.flexbdc.com. Each Eligible Stockholder had not less than 20 business days from the date of that notice to elect to tender their shares back to us.

The payment for the eligible shares that were tendered in each Special Repurchase Offer was paid promptly at the end of the applicable Special Repurchase Offer in accordance with the 1940 Act. At the discretion of our board of directors, we used cash on hand, cash available from borrowings, cash available from the issuance of new shares of our common stock and cash from the sale of our investments to fund the aggregate purchase price payable as a result of any Special Repurchase Offer.

Below is a summary of transactions with respect to shares of common stock during ~~the nine months ended~~each tender offer:



Quarterly Offer Date	Repurchase Effective Date	Shares Repurchased	Percentage of Shares Tendered That Were Repurchased		Repurchase Price Per Share		Aggregate Consideration for Repurchased Shares
Three months ended September 30, 2020
September 30, 2020	July 22, 2020	28,786	44	%	$	8.25	$	237,488
Total for the three months ended September 30, 2020		28,786					$	237,488

Year ended June 30, 2020
September 30, 2019⁽¹⁾	October 8, 2019	34,489	100	%	$	9.46	$	326,262
December 31, 2019⁽¹⁾	December 27, 2019	51,715	100	%	$	8.91	460,786
March 31, 2020	February 21, 2020	19,743	12	%	$	10.70	211,246
June 30, 2020⁽¹⁾	April 14, 2020	52,987	100	%	$	8.05	426,546
Total for the year ended June 30, 2020		158,934					$	1,424,840

Year ended June 30, 2019
June 30, 2018⁽²⁾	August 7, 2018	31,716	100	%	Class A:$12.67 Class I: $12.70		$	401,849
September 30, 2018⁽²⁾	November 13, 2018	19,180	100	%	Class A:$11.35		217,695
December 31, 2018⁽²⁾	February 15, 2019	17,748	100	%	Class A:$10.80		191,672
June 30, 2019⁽¹⁾	June 27, 2019	49,916	100	%	Class A:$9.93		495,169
Total for the year ended June 30, 2019		118,560					$	1,306,385


(1)	Subsequent to the Merger on March 31, 2019, FLEX Class A common shares were tendered in a Special Repurchase Offer.


(2)	As part of the Merger each outstanding Class A and Class I share of PWAY common stock was canceled and retired in exchange for 1.2848 and 1.2884 shares, respectively, of TPIC Class A common stock as consideration for the Merger. From and after the Merger date of March 31, 2019 (Effective Time), shares of PWAY common stock are no longer outstanding and cease to exist.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, ~~2017 and 2016:~~

For the Three Months Ended Repurchase Date Shares Repurchased Percentage of Shares Tendered That Were Repurchased Repurchase Price Per Share Aggregate Consideration for Repurchased Shares
Fiscal 2017
September 30, 2016 July 15, 2016 8,482.60 50 % $ 13.80 $ 117,060
December 31, 2016 October 14, 2016 8,482.60 48 % $ 13.80 $ 117,060
March 31, 2017 January 20, 2017 8,482.60 27 % $ 13.87 $ 117,654
June 30, 2017 May 12, 2017 1,936.81 6 % $ 13.55 $ 26,243
September 30, 2017 September 25, 2017 5,968.22 9 % $ 12.30 $ 73,409
16,387.63 12 % $ 13.26 $ 217,306

2020

~~Table of Contents~~

NOTE 4 –- RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

Administration Agreement

Pursuant to the agreement and plan of merger, as amended and restated, between TPIC and PWAY, Prospect Administration LLC (the "Administrator"), an affiliate of the Adviser, became the administrator for the Company pursuant to an administrative agreement, as amended and restated as of June 17, 2019 (the "Administration Agreement"). The ~~Adviser~~Administrator performs, oversees and ~~TFA~~arranges for the performance of administrative services necessary for the operation of the Company. These services include, but are not limited to, accounting, finance and ~~their affiliates will receive compensation~~legal services. For providing these services, facilities and ~~reimbursement~~personnel, the Company reimburses the Administrator for ~~services relating to our offering~~the Company’s actual and allocable portion of expenses and overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including rent and the ~~investment and management~~Company’s allocable portion of the costs of its ~~assets.~~

~~In connection with~~Chief Financial Officer and Chief Compliance Officer and her staff. For the ~~Offering,~~three months ended September 30, 2020 and 2019, administrative costs incurred by the Company ~~has incurred registration, organization, operating~~to the Administrator were $224,993 and ~~offering costs. Such costs have been advanced~~$163,793, respectively. As of September 30, 2020 and June 30, 2020, $225,651 and $122,384, respectively, was payable to the Administrator by the ~~Adviser. As discussed below, the~~Company.

Investment Advisory Agreement

The Company ~~has~~ entered into an ~~Expense Reimbursement~~Investment Advisory Agreement, dated March 31, 2019, with our Adviser (the “Investment Advisory Agreement”). We pay our Adviser a fee for its ~~Adviser. For the period from inception through September 30, 2017, certain registration, organization, operating and offering costs have been accounted for~~services under the ~~Expense Reimbursement~~Investment Advisory Agreement (~~see Expense Reimbursement Agreement~~~~below)~~consisting of two components - a base management fee and ~~accordingly included in Reimbursement due from~~an incentive fee. The cost of both the ~~Adviser on the statements of financial position.~~

~~The table below, on a cumulative basis, discloses the components of the Reimbursement due from Adviser reflected on the Statements of Financial Position:~~

September 30, December 31,
2017 2016
Operating Expenses $ 1,977,504 $ 1,896,657
Offering Costs 3,314,687 2,765,662
Due to related party offset (4,619,337 ) (4,213,469 )
Reimbursements received from Adviser (342,715 ) (342,715 )
Other amounts due to affiliates 448 448
Total Reimbursement due from Adviser $ 330,587 $ 106,583

~~Operating Expenses are the amounts reimbursed by the Adviser for our operating costs and offering costs are the cumulative amount of organizational and offering expenses reimbursed~~base management fee payable to ~~us by~~ the Adviser and ~~subject to future reimbursement per the terms of~~any incentive fees it earns will ultimately be borne by our ~~expense reimbursement agreement.~~

Due to related party offset represents the cash the Adviser paid directly for our operating and offering expenses and reimbursements received from sponsor are the amounts the Adviser paid in cash to us for reimbursement of our operating and offering costs.

stockholders.

Base Management Fee.The ~~Company compensates the Adviser for investment services per an Investment Adviser Agreement (“Agreement”), approved by the Company’s directors, calculated as the sum of (1)~~ base management fee is calculated ~~quarterly~~ at ~~0.5%~~an annual rate of 1.75% (0.4375% quarterly) of our average total assets, which includes any borrowings for investment purposes. For the first quarter of our operations commencing with the date of the ~~Company’s~~Investment Advisory Agreement, the base management fee was calculated based on the average ~~gross~~value of our total assets as of the date of the Investment Advisory Agreement and at the end of the calendar quarter in which the date of the Investment Advisory Agreement fell, and was appropriately adjusted for any share issuances or repurchases during the then current calendar quarter. Subsequently, the base management fee is payable quarterly in arrears, and ~~(2) an~~is calculated based on the average value of our total assets at the end of the two most recently completed calendar quarters, and is appropriately adjusted for any share issuances or repurchases during the then current calendar quarter. Base management fees for any partial month or quarter is appropriately pro-rated. At the Adviser’s option, the base management fee for any period may be deferred, without interest thereon, and paid to the Adviser at any time subsequent to any such deferral as the Adviser determines.

The total base management fee incurred by the Adviser was $183,386 and $157,409 during the three months ended September 30, 2020 and 2019, respectively, which was waived by the Adviser. After the waiver, there were $0 in base management fees due to the Adviser as of September 30, 2020 and June 30, 2020.

Incentive Fee- Subordinated Incentive Fee on Income. The first part of the incentive fee, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears based upon our “pre-incentive fee net investment income” for the immediately preceding calendar quarter. For purpose of this fee “pre-incentive fee net investment income” means interest income, dividend income and distribution cash flows from equity investments and any other income (including any other fees, such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, expenses reimbursed under the Investment Advisory Agreement and the Administration Agreement, any interest expense and dividends paid on any issued and outstanding preferred shares, but excluding the organization and offering expenses and incentive fees on income and capital gains). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a preferred return, or “hurdle,” of 1.5% per quarter (6.0% annualized) and a “catch-up” feature measured as of the end of each calendar quarter as discussed below. The subordinated incentive fee on income for each calendar quarter is paid to our Adviser as follows: (1) no incentive fee is payable to our Adviser in any calendar quarter in which our pre-incentive fee net investment income does not exceed the fixed preferred return rate of 1.5%; (2) 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the fixed preferred return but is less than or equal to 1.875% in any calendar quarter (7.5% annualized); and (3) 20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 1.875% in any calendar quarter (7.5% annualized). This reflects that once the fixed preferred return is reached and the catch-up is achieved, 20.0% of all pre-incentive fee net investment income thereafter is allocated to our Adviser. These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

Incentive Fee- Capital Gains Incentive Fee. The second part of the incentive fee, which is referred to as the capital gains incentive fee, is determined and payable in arrears as of the end of each ~~quarter or upon liquidation of the Company or~~calendar year (or upon termination of the Investment Advisory Agreement, ~~at 20%~~as of ~~Company’s~~the termination date), and equals 20.00% of our realized capital gains for the calendar year, if any, computed net of all realized capital losses and unrealized capital depreciation at the end of such year. In determining the capital gains incentive fee payable to our Adviser, we calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as ~~defined. The Agreement expires July 2018~~applicable, with respect to each investment that has been in our portfolio. For the purpose of this calculation, an “investment” is defined as the total of all rights and claims which may ~~continue automatically~~be asserted against a portfolio company arising from our participation in the debt, equity, and other financial instruments issued by that company. Aggregate realized capital gains, if any, equal the sum of the differences between the aggregate net sales price of each investment and the aggregate amortized cost basis of such investment when sold or otherwise disposed. Aggregate realized capital losses equal the sum of the amounts by which the aggregate net sales price of each investment is less than the aggregate amortized cost basis of such investment when sold or otherwise disposed. Aggregate unrealized capital depreciation equals the sum of the differences, if negative, between the aggregate valuation of each investment and the aggregate amortized cost basis of such investment as of the applicable calendar year-end. At the end of the applicable calendar year, the amount of capital gains that serves as the basis for ~~successive annual periods, as approved~~our calculation of the capital gains incentive fee involves netting aggregate realized capital gains against aggregate realized capital losses on a since-inception basis and then reducing this amount by the ~~Company. All management~~aggregate unrealized capital depreciation. If this number is positive, then the capital gains incentive fee payable is equal to 20.00% of such amount, less the aggregate amount of any capital gains incentive fees ~~earned by~~paid since inception. Operating expenses are not taken into account when determining capital gains incentive fees.

There were no incentive fees payable as of September 30, 2020 or June 30, 2020. During the three months ended September 30, 2020 and 2019, there were no incentive fees incurred.

Co-Investments

On January 13, 2020, the parent company of the Adviser ~~prior to January 1, 2014 were waived by the Adviser.~~

As a BDC, we will be subject to certain regulatory restrictions in making our investments. For example, we generally will not be permitted to co-invest alongside our Adviser and its affiliates unless we obtainreceived an exemptive order from the SEC (the “Order”),which superseded a prior co-investment exemptive order granted on February 10, 2014, granting the ability to negotiate terms other than price and quantity of co-investment transactions with other funds managed by the Adviser or certain affiliates, including Prospect Capital Corporation (“PSEC”) and Priority Income Fund, Inc. (“PRIS”), where co-investing would otherwise be prohibited under the 1940 Act, subject to the conditions included therein.

Under the terms of the order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Company’s independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to the Company and its stockholders and do not involve overreaching of the Company or its stockholders on the part of any person concerned and (2) the transaction is ~~otherwise permitted under existing regulatory guidance,~~consistent with the interests of the Company’s stockholders and is consistent with the Company’s investment objective and strategies. In certain situations where co-investment with one or more funds managed or owned by the Adviser or its affiliates is not covered by the Order, such as ~~syndicated transactions where price~~when there is an opportunity to invest in different securities of the ~~only negotiated term,~~same issuer, the personnel of the Adviser or its affiliates will need to decide which fund will proceed with the investment. Such personnel will make these determinations based on policies and ~~approval from our independent directors.~~procedures, which are designed to reasonably ensure that investment opportunities are allocated fairly and equitably among affiliated funds over time and in a manner that is consistent with applicable laws, rules and regulations. Moreover, except in certain circumstances, when relying on the Order, the Company will be unable to invest in any issuer in which one or more funds managed or owned by the Adviser or its affiliates has previously invested.

Allocation of Expenses

The cost of valuation services for CLOs is initially borne by PRIS, which then allocates to the Company its proportional share of such expense. During the three months ended September 30, 2020 and 2019, PRIS incurred $13,138 and $20,793, respectively, in expenses related to valuation services that are attributable to the Company. The Company reimburses PRIS for these expenses and includes them as part of valuation services on the ConsolidatedStatements of Operations. As of September 30, ~~2017,~~2020 and June 30, 2020, $26,654 and $13,516, respectively, of expense is due to PRIS, which is presented as part of due to affiliates on the ConsolidatedStatements of Assets and Liabilities.

The cost of filing software is initially borne by PSEC, which then allocates to the Company ~~has two affiliate investments in ACON IWP Investors I, L.L.C and Javlin Capital, LLC (held by TPJ Holdings, Inc., a wholly-owned subsidiary.)~~

~~The Company compensates TFA for administration services per an Administration Agreement for costs and expenses incurred with~~its proportional share of such expense. During the administration and operation of the Company. Such agreement expires July 2018 and may continue automatically for successive annual periods, as approved by the Company. These fees have been reimbursed from the Adviser pursuant to the Expense Reimbursement Agreement discussed below.

~~Table of Contents~~

~~The following table describes the fees and expenses accrued under the investment advisory and administration agreement and the dealer manager agreement during the~~ three ~~and nine~~ months ended September 30, ~~2017~~2020 and ~~2016:~~

Three months ended September 30, Nine months ended September 30,
Related Party Source Agreement Description 2017 2016 2017 2016
Triton Pacific Adviser, LLC Investment Adviser Agreement Base Management Fees $ 83,459 $ 60,625 $ 246,154 $ 156,957
Triton Pacific Adviser, LLC Investment Adviser Agreement Capital Gains Incentive Fees⁽¹⁾ $ — $ 11,265 $ (334 ) $ 31,609
TFA Associates, LLC Administration Agreement Administrative Services Expenses $ 70,495 $ 78,840 $ 213,473 $ 242,332
Triton Pacific Securities, LLC Dealer Manager Agreement Dealer Manager Fees⁽²⁾ $ 37,201 $ 20,987 $ 97,435 $ 107,444

2019, PSEC incurred $0 and $2,351, respectively in expenses related to the filing services that are attributable to the Company. The Company reimburses PSEC for these expenses and includes them as part of general and administrative expenses on the Consolidated Statements of Operations. As of September 30, 2020 and June 30, 2020, $0 was due to PSEC.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

~~(1)~~

~~During the nine months ended September 30, 2017 and 2016, the Company earned capital gains incentive fees~~

Officers and Directors

Certain officers and directors of ($334) and $31,609 respectively, based on the performance of its portfolio, of which ($13,124) and $31,609 were based on unrealized gains, respectively. No capital gains incentive fees are actually payable by the Company with respect to unrealized gains unless and until those gains are actually realized. See Note 2 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fees.

~~(2)~~

During the nine months ended September 30, 2017 and 2016, the Company paid the Dealer Manager $502,640 and $438,555 respectively, in sales commissions and dealer fees. $97,435 and $107,444 were retained by TPS, respectively, and the remainder re-allowed to third party participating broker dealers.

~~Director’s Fees~~

~~On December 15, 2014,~~ the Company ~~entered into an agreement (the “Director Agreement”) with~~are also officers and directors of the Adviser and its ~~three~~affiliates. There were no fees paid to the independent directors Marshall Goldberg, William Pruitt and Ronald Ruther (collectively, the “Independent Directors”), whereby the Independent Directors agreed to certain revisions to their compensation for serving as members of the ~~Company’s Board. Specifically, effective October 1, 2014,~~Company as the ~~fees payable~~Company did not exceed the minimum net asset value required (i.e., greater than $100 million) to ~~an Independent Director shall be determined based on the Company’s net assets as of the end of each fiscal quarter and be paid quarterly in arrears as follows:~~

Net Asset Value Annual Cash
Retainer Fee Board Meeting
Fee Annual Audit
Committee
Chairperson
Fee Annual Audit
Committee
Member Fee Audit
Committee
Meeting Fee
$0 to $25 million — — — — —
$25 million to $75 million $20,000 $1,000 $10,000 $2,500 $500
over $75 million $30,000 $1,000 $12,500 $2,500 $500

~~No Director’s fees were accrued~~receive a fee for the three ~~and nine~~ months ended September 30, ~~2017~~2020. The officers do not receive any direct compensation from the Company.

Expense Limitation and ~~2016.~~

Expense Reimbursement Agreements

Expense Reimbursement Agreement

with TPIC and the Former Adviser

Prior to the Merger, Triton Pacific Adviser, LLC served as our investment adviser (the “Former Adviser”). On March 27, 2014, TPIC and the ~~Company and its~~Former Adviser ~~agreed to~~entered into an ~~Expense Support and Conditional Reimbursement Agreement, or the~~ Expense Reimbursement Agreement. The Expense Reimbursement Agreement was amended and restated effective ~~November 17, 2014.~~April 5, 2018. Under the Expense Reimbursement Agreement, as amended, the Former Adviser, in consultation with ~~the Company, will~~TPIC, could pay up to 100% of both ~~the Company’s~~of TPIC’s organizational and offering expenses and ~~its~~TPIC’s operating expenses, all as determined by ~~the Company~~TPIC and the Former Adviser. As used in the Expense Reimbursement Agreement, operating expenses refer to third party operating costs and expenses incurred by the Company, as determined under GAAP for investment management companies. Organizational and offering expenses include expenses incurred in connection with the organization of the Company and expenses incurred in connection with its offering, which are recorded as a component of equity. The Expense Reimbursement Agreement ~~states~~stated that until the net proceeds to ~~the Company~~TPIC from its offering ~~are~~were at least $25 million, the Former Adviser ~~will~~could pay up to 100% of both ~~the Company’s~~of TPIC’s organizational and offering expenses and ~~its~~TPIC’s operating expenses. After ~~the Company receives~~TPIC received at least $25 million in net proceeds from its offering, the Former Adviser ~~may,~~could, with ~~the Company’s~~TPIC’s consent, continue to make expense support payments to ~~the Company~~TPIC in such amounts as ~~are~~was acceptable to ~~the Company~~TPIC and the Former Adviser. ~~Any expense support payments shall be paid by~~The Expense Reimbursement Agreement terminated on December 31, 2018. The Former Adviser had agreed to reimburse a total of $5,292,192 as of December 31, 2018. However, as part of the Merger, the Former Adviser agreed to ~~the Company in~~waive any ~~combination of cash, and/or offsets against~~ amounts ~~otherwise due from the Company~~owed to ~~the Adviser.~~

~~Table of Contents~~

~~Under~~it under the Expense Reimbursement Agreement.

PWAY’s Expense Support and Expense Limitation Agreement ~~as amended, once~~

PWAY entered into an expense support and conditional reimbursement agreement (the “Expense Support Agreement”) with Pathway Capital Opportunity Fund Management, LLC (the “PWAY Adviser”), whereby the ~~Company has received at least $25 million~~PWAY Adviser agreed to reimburse PWAY for operating expenses in an amount equal to the difference between distributions to its stockholders for which a record date occurred in each quarter less the sum of PWAY's net ~~proceeds~~investment income, the net realized capital gains/losses and dividends and other distributions paid to PWAY from its ~~offering,~~portfolio investments during such period (“Expense Support Reimbursement”). To the extent that there were no dividends or other distributions to PWAY's stockholders for which a record date had occurred in any given quarter, ~~occurring within three years of~~then the ~~date on which~~Expense Payment for such quarter was equal to such amount necessary in order for available operating funds for the ~~Company incurred~~quarter to equal zero. PWAY had a conditional obligation to reimburse the PWAY Adviser for any ~~expenses that are~~amounts funded by the PWAY Adviser under the ~~Company is required~~Expense Support Agreement. Following any calendar quarter in which Available Operating Funds in such calendar quarter exceeded the cumulative distributions to ~~reimburse the Adviser~~stockholders for any expense support payments the Company received from them. However, with respect to any expense support payments attributable to the Company’s operating expenses, (i) the Company will only reimburse the Adviser for expense support payments madewhich a record date occurred in such calendar quarter (“Excess Operating Funds”) on a date mutually agreed upon by the PWAY Adviser and PWAY (each such date, a “Reimbursement Date”), PWAY paid such Excess Operating Funds, or a portion thereof, to the extent that PWAY had cash available for such payment, to the ~~payment~~PWAY Adviser until such time as all Expense Payments made by the PWAY Adviser to PWAY had been reimbursed; provided that (i) the operating expense ratio as of such Reimbursement Date was equal to or less than the operating expense ratio as of the Expense Payment Date attributable to such specified Expense Payment; (ii) the annualized distribution rate, which included all regular cash distributions paid and excluded special distributions or the effect of any stock dividends paid, as of such Reimbursement Date was equal to or greater than the annualized distribution rate as of the Expense Payment Date attributable to such specified Expense Payment; and (iii) such specified Expense Payment Date was not earlier than three years prior to the Reimbursement Date. PWAY received $456,660 in Expense Support Reimbursement for the year ended June 30, 2018. The Expense Support Agreement including any amendments, terminated on October 31, 2017.

The PWAY Adviser and PWAY entered into an Expense Limitation Agreement on October 31, 2017 under which the PWAY Adviser agreed contractually to waive its fees and to pay or absorb the operating expenses of PWAY, including offering expenses, any shareholder servicing fees, and other expenses described in the Investment Advisory Agreement of PWAY, but not including any portfolio transaction or other investment-related costs (including brokerage commissions, dealer and underwriter spreads, prime broker fees and expenses and dividend expenses related to short sales), interest expenses and other financing costs, distribution fees, extraordinary expenses and acquired fund fees and expenses, to the extent that they exceeded the expense limitation per class on a per annum basis of PWAY’s average weekly net assets, through October 31, 2018 (the “Expense Limitation”). In consideration of the PWAY Adviser’s agreement to limit PWAY’s expenses, PWAY agreed to repay the PWAY Adviser in the amount of any fees waived and PWAY expenses paid or absorbed, subject to the limitations that: (1) the reimbursement ~~(together~~was made only for fees and expenses incurred not more than three years following the end of the fiscal quarter in which they were incurred; and (2) the reimbursement was not made if it would cause the Expense Limitation, or any lower limit had been put in place, to be exceeded. On October 31, 2018, the Expense Limitation Agreement expired.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

On May 11, 2018, the PWAY Adviser agreed to permanently waive its right to any reimbursement (the “Waiver”) to which it was entitled pursuant to the Expense Support Agreement, and any amendments, or the Expense Limitation Agreement, between PWAY and the PWAY Adviser, in the event PWAY (i) consummates a transaction (a “Transaction”) in which PWAY (x) merges with ~~any other reimbursement paid during~~and into another company, or (y) sells all or substantially all of its assets to one or more third parties, or (ii) liquidates its assets and dissolves in accordance with PWAY’s charter and bylaws (a “Dissolution” and together with a Transaction, an “Exit Event”). The Waiver was effective on August 10, 2018 which is when PWAY’s board of directors approved an Exit Event via a merger with TPIC. As such, ~~fiscal year) does not cause “other operating expenses”~~PWAY is no longer obligated to reimburse the PWAY Adviser per the Waiver. This resulted in a reversal of offering costs in the amount $482,981 which is presented as an increase to paid-in capital on the Consolidated Statements of Changes in Net Assets for the year ended June 30, 2019.

Expense Limitation Agreement with the Adviser

Concurrently with the closing of the Merger, we entered into an Expense Limitation Agreement with our Adviser (the “ELA”). Pursuant to the ELA, our Adviser, in its sole discretion, may waive a portion or all of the investment advisory fees that it is entitled to receive pursuant to the Investment Advisory Agreement in order to limit our Operating Expenses (as defined below) ~~(on~~to an ~~annualized basis and~~annual rate, expressed as a percentage of our average quarterly net assets, equal to 8.00% (the “Annual Limit”). For purposes of ~~any expense reimbursement payments received by~~the ELA, the term “Operating Expenses” with respect to the Company, ~~during such fiscal year)~~is defined to ~~exceed~~include all expenses necessary or appropriate for the ~~percentage~~operation of the ~~Company’s average net assets attributable~~Company, including but not limited to ~~shares~~our Adviser’s base management fee, any and all costs and expenses that qualify as line item “organization and offering” expenses in the consolidated financial statements of the Company as the same are filed with the SEC and other expenses described in the Investment Advisory Agreement, but does not include any portfolio transaction or other investment-related costs (including brokerage commissions, dealer and underwriter spreads, prime broker fees and expenses and dividend expenses related to short sales), interest expenses and other financing costs, extraordinary expenses and acquired fund fees and expenses. Upfront shareholder transaction expenses (such as sales commissions, dealer manager fees, and similar expenses) are not Operating Expenses. As part of the ELA, our Adviser waived its ~~common stock represented~~investment advisory fees of $183,386 and $157,409 for the three months ended September 30, 2020 and 2019, respectively.

Any amount waived pursuant to the ELA is subject to repayment to our Adviser (an “ELA Reimbursement”) by ~~“other operating expenses” during~~us within the ~~fiscal year~~three years following the end of the quarter in which ~~such expense support payment from~~ the ~~Adviser~~waiver was made ~~(provided, however,~~by our Adviser. If the ELA is terminated or expires pursuant to its terms, our Adviser maintains its right to repayment for any waiver it has made under the ELA, subject to the Repayment Limitations (discussed below).

An ELA Reimbursement can be made solely in the event that this clause (i) shall not apply to any reimbursement payment which relates to an expense support payment from the Adviser made during the same fiscal year); and (ii) the Company will not reimburse the Adviser for expense support payments made by the Adviser if the annualized rate of regularwe have sufficient excess cash ~~distributions declared by the Company~~on hand at the time of any proposed ELA Reimbursement and shall be limited to the lesser of (i) the excess of the Annual Limit applicable to such ~~reimbursement payment is less than~~quarter over the Company’s actual Operating Expenses for such quarter and (ii) the amount of ELA Reimbursement which, when added to the Company’s expenses for such quarter, permits the Company to pay the then-current aggregate quarterly distribution to its shareholders, at a minimum annualized rate of ~~regular cash distributions declared by~~at least 6.00% (based on the gross offering prices of Company shares) (the “Distribution”) from the sum of (x) the Company’s net investment income (loss) for such quarter plus (y) the Company’s net realized gains (losses) for such quarter (collectively, the “Repayment Limitations”). For the purposes of the calculations pursuant to (i) and (ii) of the preceding sentence, any ELA Reimbursement will be treated as an expense of the Company ~~at the time the Adviser made the expense support payment to which~~for such reimbursement relates. “Other operating expenses” means the Company’s total operating expenses excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses.

Quarter Ended Amount of Expense Payment Obligation Amount of Offering Cost Payment Obligation Operating Expense
Ratio as of the
Date Expense
Payment Obligation Incurred⁽¹⁾ Annualized Distribution
Rate as of the Date
Expense Payment
Obligation Incurred⁽²⁾ Eligible for
Reimbursement
Through
September 30, 2012 $21,826 432.69% — September 30, 2015
December 31, 2012 $26,111 531.09% — December 31, 2015
March 31, 2013 $30,819 N/A — March 31, 2016
June 30, 2013 $59,062 N/A — June 30, 2016
September 30, 2013 $65,161 N/A — September 30, 2016
December 31, 2013 $91,378 455.09% — December 31, 2016
March 31, 2014 $68,293 148.96% — March 31, 2017
June 30, 2014 $70,027 $898,518 23.17% — June 30, 2017
September 30, 2014 $92,143 $71,060 20.39% — September 30, 2017
December 31, 2014 $115,777 $90,860 11.15% — December 31, 2017
March 31, 2015 $134,301 $106,217 13.75% 2.01% March 31, 2018
June 30, 2015 $166,549 $167,113 14.10% 3.20% June 30, 2018
September 30, 2015 $147,747 $240,848 10.45% 3.20% September 30, 2018
December 31, 2015 $136,401 $280,376 7.41% 3.60% December 31, 2018
March 31, 2016 $157,996 $232,895 6.00% 3.52% March 31, 2019
June 30, 2016 $206,933 $285,878 4.95% 3.52% June 30, 2019
September 30, 2016 $201,573 $223,020 4.52% 3.13% September 30, 2019
December 31, 2016 $104,561 $168,876 4.45% 3.11% December 31, 2019
March 31, 2017 $80,847 $252,875 4.21% 3.19% March 31, 2020
June 30, 2017 $0 $176,963 3.98% 3.18% June 30, 2020
September 30, 2017 $0 $119,188 4.19% 3.00% September 30, 2020

~~(1)~~

~~“Operating Expense Ratio” includes all expenses borne by us, except for organizational and offering expenses, base management and incentive fees owed to our Adviser,financing fees and costs, interest expense, brokerage commissions and extraordinary expenses.~~The Company did not achieve its minimum offering amount until June 25, 2014 and as a result, did not invest the proceeds from the offering and realize any income from investments prior to the end of its fiscal quarter.

~~(2)~~

“Annualized Distribution Rate” equals the annualized rate of distributions paid to stockholders based on the amount of the regular cash distribution paid immediately prior to the date the expense support payment obligation was incurred by our Adviser. “Annualized Distribution Rate” does not include special cash or stock distributions paid to stockholders. The Company did not achieve its minimum offering amount until June 25, 2014 and as a result, did not have an opportunity to invest the proceeds from the offering and realize any income from investments or pay any distributions to stockholders prior to the end of its fiscal quarter.

~~In addition, with respect to any expense support payment attributable~~quarter, without regard to the ~~Company’s organizational and offering expenses,~~GAAP treatment of such expense. To the extent the Company ~~will only reimburse~~books accruals for any such reimbursements, such accruals shall be booked in accordance with GAAP. In the ~~Adviser~~event that the Company is unable to make a full payment of any ELA Reimbursements due for ~~expense support payments~~any applicable quarter because the Company does not have sufficient excess cash on hand, any such unpaid amount shall become a payable of the Company for accounting purposes and shall be paid when the Company has sufficient cash on hand (subject to the Repayment Limitations); provided, that in the case of any ELA Reimbursements, such payment shall be made no later than the date that is three years following the end of the quarter in which the applicable waiver was made by the Adviser to the extent that the payment of such reimbursement (together with any other reimbursement for organizational and offering expenses paid during such fiscal year) is limited to 15% of cumulative gross sales proceeds from the Company’s offering including the sales load (or dealer manager fee) paid by the Company.

our Adviser.

PROSPECT FLEXIBLE INCOME FUND, INC.

~~Table of Contents~~

The Expense Reimbursement Agreement is, by its terms, effective retroactively to the Company’s inception date of April 29, 2011 for Operating Expenses and from the break of escrow on June 25, 2014 for Offering Expenses. As of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, ~~2017, $5,292,191 has been recorded as Reimbursement due from~~2020

The following table provides information regarding liabilities incurred by the Adviser pursuant to the ~~Expense Reimbursement Agreement. Of this, $4,619,337, representing an amount due~~ELA:



Period Ended	ELA Reimbursement Payable to the Adviser		ELA Reimbursement Payment to the Adviser		Unreimbursed ELA Reimbursement		Operating Expense Ratio	Annualized Distribution Rate	Eligible to be Repaid Through
June 30, 2019	$	128,852	$	—	$	128,852	5.54%	6.00%	June 30, 2022
September 30, 2019	$	157,409	$	—	$	157,409	2.84%	6.00%	September 30, 2022
December 31, 2019	$	182,205	$	—	$	182,205	3.68%	6.00%	December 31, 2022
March 31, 2020	$	185,935	$	—	$	185,935	3.39%	7.00%	March 31, 2023
June 30, 2020	$	182,915	$	—	$	182,915	3.76%	7.00%	June 30, 2023
September 30, 2020	$	183,386	$	—	$	183,386	4.33%	7.00%	September 30, 2023
Total	$	1,020,702			$	1,020,702

Dealer Manager Agreement

The Company and its Adviser have entered into a dealer manager agreement, as amended, with Triton Pacific Securities, LLC ("TPS") pursuant to which the Company will pay the dealer manager a fee of up to 9% of gross proceeds raised in the Company's offering, some of which will be re-allowed to other participating broker-dealers. In addition to the upfront selling commissions and dealer manager fees, the Adviser ~~was netted against~~may pay TPS a fee (the "Additional Selling Commissions") equal to no more than 1.0% of the ~~Reimbursement due from~~net asset value per share per year. TPS will reallow all or a portion of the Additional Selling Commissions to participating broker-dealers. TPS is an affiliated entity of the Former Adviser and ~~$342,715 was paid to~~is partially owned by one of our directors, Craig Faggen.

For the ~~Company by the Adviser.~~

~~Beginning the year ended December 31, 2016, the Adviser began to reimburse less than 100% of Operating Expenses, and for the quarter~~three months ended September 30, ~~2017,~~2020 and 2019, TPS incurred offering expenses of $0 and $33,597, respectively. As of September 30, 2020 and June 30, 2020, the Company owes TPS $798 related to offering costs and general and administrative expenses which is included in Due to Affiliate on the ConsolidatedStatements of Assets and Liabilities. Offering costs of $73,548 and $80,661 as of September 30, 2020 and June 30, 2020, respectively, are also included in Due to Affiliate on the ConsolidatedStatements of Assets and Liabilities.

License Agreement

We entered into a license agreement with an affiliate of our Adviser, ~~did not reimburse any Operating Expenses. Of these Operating and Offering Expenses in~~pursuant to which the ~~table above, $1,494,398 has exceeded~~affiliate granted us a non-exclusive, royalty free license to use the ~~three-year period~~“Prospect” name. Under this license agreement, we have the right to use such name for ~~repayment and will not be repayable by~~so long as our Adviser or another affiliate of Prospect Capital Management is our investment adviser. Other than with respect to this limited license, we have no legal right to the ~~Company.~~

~~The Company~~“Prospect” name or the Adviser may terminate the Expense Reimbursement Agreement at any time upon thirty days’ written notice; The Expense Reimbursement Agreement will automatically terminate upon termination of the Investment Advisory Agreement or upon the Company’s liquidation or dissolution.

logo.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

NOTE 5 –- DISTRIBUTIONS

As of September 30, 2020 and June 30, 2020, distributions payable is $119,151 and $111,447, respectively, which is presented as Distributions payable on the

Consolidated Statements of Assets and Liabilities.

The following table reflects the cash distributions per share that the Company declared and paid on its common stock during the ~~nine~~three months ended September 30, ~~2017~~2020 and ~~2016:~~

Fiscal 2016
January 22, 2016 $ 0.04500 $ 25,244
February 16, 2016 $ 0.04500 $ 26,477
March 23, 2016 $ 0.04500 $ 30,271
April 21, 2016 $ 0.04500 $ 32,832
May 19, 2016 $ 0.04500 $ 34,950
June 23, 2016 $ 0.04500 $ 36,206
July 21, 2016 $ 0.04000 $ 32,318
August 25, 2016 $ 0.04000 $ 33,293
September 22, 2016 $ 0.04000 $ 33,877

~~On October 23, 2017, the Company authorized~~2019:



	Distributions
For the Three Months Ended	FLEX Class A Common Shares, per share		FLEX Class A Common Shares, Amount Distributed
September 30, 2020
July 6, 10, 17, 24 and 31, 2020	$	0.05895	$	139,125
August 7, 14, 21 and 28, 2020	$	0.04716	$	111,326
September 4, 11, 18 and 25, 2020	$	0.05012	$	119,152
Total for the Three Months Ended September 30, 2020			$	369,603

September 30, 2019
July 5, 12, 19 and 26, 2019	$	0.05240	$	124,512
August 2, 9, 16, 23 and 30, 2019	$	0.06550	$	156,184
September 6, 13, 20 and 27, 2019	$	0.05240	$	125,345
Total for the Three Months Ended September 30, 2019			$	406,041

The following FLEX distributions were previously declared and ~~declared a cash distribution of $0.03417 per share for the month of October 2017,~~have record dates subsequent to the shareholders of record as of October 26, 2017. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.

September 30, 2020:



Record Date	Payment date	FLEX Class A Common Shares, per share
October 2, 9, 16, 23 and 30, 2020	November 6, 2020	$	0.06265
November 6, 13, 20 and 27, 2020	December 4, 2020	$	0.05012

The Company has adopted an “opt in” distribution reinvestment plan for its stockholders. As a result, if the Company makes a cash distribution, its stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of the Company’s common stock. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a stockholder’s ability to participate in the distribution reinvestment plan.

~~Table of Contents~~

The Company may fund its cash distributions to stockholders from any sources of funds legally available to it, 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, dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from the Adviser. The Company has not established limits on the amount of funds it may use from available sources to make distributions.

During the three months ended September 30, 2020 and 2019, the Company's officers and directors did not purchase any shares of our stock.

NOTE 6 - INCOME TAXES

On March 31, 2019, in connection with the Merger, PWAY’s outstanding shares were cancelled and retired in exchange for TPIC common stock. The ~~following table reflects~~Merger should qualify as a “tax-free reorganization” within the ~~sources~~meaning of Section 368(a) of the ~~cash~~Code, and the merger agreement constituted a “plan of reorganization” for such purposes. As such, this transaction was intended to qualify as a nontaxable merger under Section 368 of the Code. Due to this transaction, PWAY dissolved for income tax purposes as of March 31, 2019. As such, PWAY filed a final tax return for the nine-month period ended March 31, 2019. The Company continued to file its income tax returns using a calendar year end. The Company reflected all items of income, deduction, gain, and loss generated from the assets obtained from the merger transaction beginning on April 1, 2019. Former PWAY shareholders received a final Form 1099-DIV for the 2019 year reflecting the character of PWAY’s distributions made between January 1, 2019 and March 31, 2019. The Company’s shareholders received a Form 1099-DIV for the 2019 calendar year reflecting TPIC’s distributions

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

made between January 1, 2019 and March 31, 2019 and FLEX’s distributions made between April 1, 2019 and December 31, 2019.

While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is December 31 of each year. The information presented in this footnote is based on our tax year end for each period presented, unless otherwise specified.

For income tax purposes, dividends paid and distributions made to shareholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax ~~basis that~~character of dividends paid to shareholders during the ~~Company~~tax year ended December 31, 2019 was as follows:



	Unaudited TPIC January 1, 2019 - March 31, 2019		FLEX April 1, 2019 - December 31, 2019		Tax Year Ended December 31, 2019
Ordinary income	$	48,359	$	—	$	48,359
Return of capital	113,975		1,221,101		1,335,076
Total distributions paid to stockholders	$	162,334	$	1,221,101	$	1,383,435

The estimated tax character of dividends paid ~~on its common stock~~to the Company's shareholders during the nine months ended September 30, ~~2017~~2020 is expected to be as follows:



	Unaudited FLEX January 1, 2020 - September 30, 2020
Ordinary income	$	365,151
Return of capital	892,075
Total distributions paid to stockholders	$	1,257,226

However, the final determination of the tax character of dividends between ordinary income, capital gains and ~~2016:~~

Nine months ended September 30,
2017 2016
Source of Distribution Distribution
Amount Percentage Distribution
Amount Percentage
Offering proceeds $ — — $ — —
Borrowings — — — —
Net investment income⁽¹⁾ — — — —
Short-term capital gains proceeds from the sale of assets 47,998 12 % — —
Long-term capital gains proceeds from the sale of assets — 0 % — —
Distributions from common equity (return of capital) 352,941 88 % — —
Expense reimbursement from sponsor — 0 % 285,469 100 %
Total $ 400,939 100 % $ 285,469 100 %

return of capital will not be made until we file our tax return for the tax year ending December 31, 2020.

The Company's cost basis of investments as of September 30, 2020 for tax purposes was $38,366,928, resulting in an estimated net unrealized loss of $516,829. The gross unrealized gains and losses as of September 30, 2020 were $846,298 and $1,363,128, respectively.

The Company's cost basis of investments as of June 30, 2020 for tax purposes was $37,805,562, resulting in an estimated net unrealized loss of $1,141,859. The gross unrealized gains and losses as of June 30, 2020 were $679,115 and $1,820,974, respectively.

Taxable income generally differs from net decrease in net assets resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized. The following illustrates the net decrease in net assets resulting from operations to taxable income, which were included as part of our tax return for the tax year ended December 31, 2019.

~~(1)~~

During the nine months ended September 30, 2017 and 2016, 92.7% and 86.3%, respectively, of the Company’s gross investment income was attributable to cash income earned, and 7.3% and 13.7%, resepctively was attributable to non-cash accretion of discount and paid in-kind interest.

~~The Company’s net investment income (loss) on~~



	Unaudited TPIC January 1, 2019 - March 31, 2019			FLEX April 1, 2019 - December 31, 2019			Tax Year Ended December 31, 2019
Net increase (decrease) in net assets resulting from operations	$	(775,946	)	$	(1,838,219	)	$	(2,614,165	)
Net realized (gains) losses on investments	(1,672		)	1,880,543			1,878,871
Net unrealized (gains) losses on investments	61,423			(522,667		)	(461,244		)
Other temporary book-to-tax differences	—			(468,645		)	(468,645		)
Permanent differences	659,270			372,911			1,032,181
Taxable income (loss) before deductions for distributions	$	(56,925	)	$	(576,077	)	$	(633,002	)

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

Capital losses in excess of capital gains earned in a tax year may generally be carried forward and used to offset capital gains, subject to certain limitations. For the tax year ended December 31, 2019, we had capital loss carryforwards of approximately $3,339,662 available for use in later tax years. The unused balance each year will be carried forward and utilized as gains are realized, subject to limitations. While our ability to utilize losses in the future depends upon a variety of factors that cannot be known in advance, some of the Company’s capital loss carryforwards may become permanently unavailable due to limitations by the Code.

In general, we may make certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which may include merger-related items, differences in the book and tax basis of certain assets and liabilities, amortization of offering costs, expense payments, nondeductible federal excise taxes and net operating losses, among other items. For the tax year ended December 31, 2019, we increased total distributable earnings (loss) by $1,665,184 and decreased additional paid in capital by $1,665,184. Initially when the Company filed it's audited financial statements, we increased total distributable earnings (loss) by $1,664,822 and decreased additional paid in capital by $1,664,822. The $362 difference is adjusted for the three months ended September 30, 2020.

PWAY Income Taxes - Pre-Merger

As of March 31, 2019, PWAY’s cost basis of investments for tax purposes was $8,993,783 resulting in an estimated net unrealized loss of $811,740. As of March 31, 2019, the gross unrealized gains and losses were $198,628 and $1,010,368, respectively. As a result of the tax-free reorganization on March 31, 2019, PWAY’s tax basis in its assets have been carried over to the Company.

For the short tax year ended March 31, 2019, PWAY had no cumulative taxable income in excess of cumulative distributions. For the short tax year ended March 31, 2019, PWAY estimated $100,642 in capital loss carryforwards available for future use. This amount will be available for utilization by the Company beginning with the tax year ended December 31, 2019.

TPIC/FLEX Income Taxes - Pre-Merger

Prior to the merger, the TPIC’s cost basis of investments for tax purposes was $12,106,882 resulting in an estimated net unrealized loss of $675,641. Prior to the merger, the gross unrealized gains and losses were $70,589 and $746,230 respectively.

For the tax year ended December 31, 2018, TPIC had no cumulative taxable income in excess of cumulative distributions.

For the tax year ended December 31, 2018, TPIC had $1,360,148 capital loss carryforwards available for future use. Combined with PWAY’s capital loss carryforward of $100,642, the Company will have a combined capital loss carryforward of $1,460,790 available for future utilization.

The tax character of distributions declared and paid to PWAY's shareholders during the nine months ended March 31, 2019 was as follows:



	Nine Months Ended March 31, 2019⁽¹⁾
Ordinary income	$	23,732
Return of capital	300,907
Total distributions paid to stockholders	$	324,639

⁽¹⁾PWAY dissolved for income tax purposes as of March 31, 2019. As such, PWAY filed a final tax return for the nine-month period ended March 31, 2019.

The character of distributions declared and paid to PWAY's shareholders during the year ended June 30, 2018 was as follows:



	Year Ended June 30, 2018
Capital gain	$	161,753
Return of capital	403,766
Total distributions paid to stockholders	$	565,519

Taxable income generally differs from net increase in net assets resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized. The following reconciles

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, ~~2017~~2020

the net decrease in net assets resulting from operations to taxable income for the tax years ended June 30, 2018 and 2016 was ($77,447) and $289,892, respectively. As of September 30, 2017 and 2016, the Company had ($356,802) and $14,632, respectively, of undistributed (overdistributed) net investment income and realized gains on a tax basis.

The primary difference between the Company’s GAAP-basis net investment income and its tax-basis net investment income is due to the reversal of the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized gains are payable by the Company for the nine months ended ~~September 30, 2017 and 2016.~~

~~The following table sets forth reconciliation between GAAP basis~~March 31, 2019.



	Nine Months Ended March 31, 2019			Year Ended June 30, 2018
Net increase (decrease) in net assets resulting from operations	$	163,573		$	(5,126	)
Net realized (gain) loss on investments	45,453			(181,007		)
Net unrealized (gain) losses on investments	769,197			704,925
Other temporary book-to-tax differences	(83,713		)	(230,457		)
Permanent differences	(899,819		)	(855,526		)
Taxable income before deductions for distributions	$	(5,309	)	$	(567,191	)

In general, we may make certain adjustments to the classification of net ~~investment income~~assets as a result of permanent book-to-tax differences, which may include differences in the book and tax basis of certain assets and liabilities, amortization of offering costs, expense payments, nondeductible federal excise taxes and net operating losses, among other items. For the year ended June 30, 2019, we increased accumulated net investment ~~income for the nine months ended~~loss by $894,510 and increased additional paid in capital by $894,510.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, ~~2017 and 2016:~~

Nine months ended September 30,
2017 2016
GAAP basis net investment income (loss) $ (77,113 ) $ 261,264
Reversal of incentive fee accrual on unrealized gains (334 ) 31,609
Other book-tax differences — (2,981 )
Tax-basis net investment income (loss) $ (77,447 ) $ 289,892

The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s fiscal year based upon the Company’s taxable income for the full year and distributions paid for the full year. The actual tax characteristics of distributions to stockholders are reported to stockholders annually on Form 1099-DIV.

2020

~~Table of Contents~~

~~As of September 30, 2017 and 2016, the components of accumulated earnings on a tax basis were as follows:~~

Nine months ended September 30,
2017 2016
Overdistributed ordinary income (income and short-term capital gains) $ (421,863 ) $ 13,607
Distributable realized gains (long-term capital gains) 65,061 1,025
Net unrealized appreciation (depreciation) on investments (1,448,359 ) 340,015
$ (1,805,161 ) $ 354,647

The ($1,448,359)) of net depreciation as of September 30, 2017 includes gross appreciation over amortized tax cost of $191,929 and gross depreciation under amortized tax cost of $1,640,288. The $340,015 of net appreciation as of September 30, 2016 includes gross appreciation over amortized tax cost of $393,427 and gross depreciation under amortized tax cost of $53,412.

The aggregate cost of the Company’s investments for U.S. federal income tax purposes totaled $12,934,038 and $8,635,919 as of September 30, 2017 and 2016, respectively. The aggregate net unrealized appreciation (depreciation) on investments on a tax basis was ($1,448,359) and $340,015 as of September 30, 2017 and 2016, respectively.

NOTE ~~6 –~~7 - INVESTMENT PORTFOLIO

At September 30, 2020, we had investments in 55 long-term portfolio investments and CLOs, which had an amortized cost of $39,596,727 and a fair value of $37,850,100. At June 30, 2020, we had investments in 51 long-term portfolio investments and CLOs, which had an amortized cost of $38,874,913 and a fair value of $36,663,703.

The original cost basis of debt placement and equity securities acquired, including follow-on investments for existing portfolio companies, payment-in-kind interest, and structuring fees, totaled $1,242,024 and $10,434,639 during the three months ended September 30, 2020 and 2019, respectively. Debt repayments and considerations from sales of equity securities of approximately $691,385 and $1,622,438 were received during the three months ended September 30, 2020 and 2019, respectively.

The following ~~table summarizes~~tables summarize the composition of the Company’s investment portfolio at amortized cost and fair value as of September 30, ~~2017~~2020 and ~~December 31, 2016:~~

Nine months ended September 30, 2017
(Unaudited) Year Ended December 31, 2016
Investments at Amortized Cost⁽¹⁾ Investments at Fair Value Fair Value Percentage of Total Portfolio Investments at Amortized Cost⁽¹⁾ Investments at Fair Value Fair Value Percentage of Total Portfolio
Senior Secured Loans—First Lien $ 7,600,385 $ 7,621,047 67 % $ 6,680,615 $ 6,761,313 63 %
Senior Secured Loans—Second Lien 3,417,266 3,354,639 29 % 2,024,991 1,967,658 19 %
Subordinated Debt 666,389 — 0 % 646,901 646,901 6 %
Equity/Other 1,250,000 509,993 4 % 1,250,000 1,228,301 12 %
Total $ 12,934,040 $ 11,485,679 100 % $ 10,602,507 $ 10,604,173 100 %

~~(1)~~

~~Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.~~

June 30, 2020:

~~Table of Contents~~



	September 30, 2020
	Investments at Amortized Cost⁽¹⁾		Investments at Fair Value		Fair Value Percentage of Total Portfolio

Senior Secured Loans-First Lien	$	30,341,339	$	30,140,704	80	%
Senior Secured Loans-Second Lien	1,123,701		812,905		2	%
Senior Secured Notes	960,495		846,716		2	%
Structured Subordinated Notes	6,490,081		5,181,861		14	%
Equity/Other	681,111		867,914		2	%
Total Portfolio Investments	$	39,596,727	$	37,850,100	100	%

	June 30, 2020
	Investments at Amortized Cost⁽¹⁾		Investments at Fair Value		Fair Value Percentage of Total Portfolio

Senior Secured Loans-First Lien	$	29,307,625	$	28,653,561	78	%
Senior Secured Loans-Second Lien	1,558,072		1,213,148		4	%
Senior Secured Notes	955,986		811,267		2	%
Structured Subordinated Notes	6,372,119		5,198,739		14	%
Equity/Other	681,111		786,988		2	%
Total Portfolio Investments	$	38,874,913	$	36,663,703	100	%

(1) Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of September 30, ~~2017~~2020 and ~~December 31, 2016:~~

September 30, 2017
(Unaudited) December 31, 2016
Industry Classification Fair
Value Percentage of
Portfolio Fair
Value Percentage of
Portfolio
Automotive Repair, Services, and Parking $ — 0.0 % $ 122,459 1.2 %
Beverage, Food & Tobacco 1,658,531 14.4 % 1,162,891 11.0 %
Business Services 4,365,138 38.0 % 2,793,526 26.3 %
Consumer Services 1,178,419 10.3 % 955,659 9.0 %
Energy: Oil & Gas 341,928 3.0 % 346,500 3.3 %
Healthcare & Pharmaceuticals 949,567 8.3 % 1,403,008 13.2 %
High Tech Industries 875,938 7.6 % 1,016,921 9.6 %
Hotel, Gaming & Leisure 353,478 3.1 % — 0.0 %
Media: Diversified and Production 345,471 3.0 % 347,375 3.3 %
Metals & Mining 754,832 6.6 % 245,625 2.3 %
Paper and Allied Products — 0.0 % 115,294 1.0 %
Retail — 0.0 % 712,500 6.7 %
Specialty Finance — 0.0 % 1,184,130 11.2 %
Telecommunications 499,876 4.4 % — 0.0 %
Transportation: Cargo — 0.0 % — 0.0 %
Wholesale Trade-Nondurable Goods 162,501 1.3 % 198,285 1.9 %
Total $ 11,485,679 100.0 % $ 10,604,173 100.00 %

On June 30, 2017, The Company made the decision to fully mark down its remaining investment value in Javlin Financial as an unrealized loss. The decision was due to performance issues within Javlin Financial’s core business and a breakdown in restructuring negotiations between the Company, its lenders, and Javlin Financial’s controlling shareholder. It is unknown at this time if there will be any value to the investment.

2020:



	September 30, 2020
Industry	Investments at Fair Value		Percentage of Portfolio
Structured Finance	$	5,181,861	14	%
Healthcare & Pharmaceuticals	4,986,227		13	%
Services: Consumer	4,499,229		12	%
High Tech Industries	4,112,159		11	%
Telecommunications	3,689,794		10	%
Media: Broadcasting & Subscription	2,028,497		5	%
Services: Business	1,954,348		5	%
Wholesale	1,875,111		5	%
Construction & Building	1,700,325		4	%
Media: Diversified and Production	1,656,200		4	%
Transportation: Cargo	1,466,482		4	%
Automotive	1,210,101		3	%
Financial	846,716		2	%
Banking, Finance, Insurance & Real Estate	707,167		2	%
Consumer goods: Durable	707,045		2	%
Beverage, Food & Tobacco	453,433		1	%
Energy: Oil & Gas	401,875		1	%
Media: Advertising, Printing & Publishing	365,548		1	%
Retail	7,982		1	%
Total	$	37,850,100	100	%

	June 30, 2020
Industry	Investments at Fair Value		Percentage of Portfolio
Structured Finance	$	5,198,739	14	%
Healthcare & Pharmaceuticals	4,911,755		13	%
Services: Consumer	4,589,768		13	%
High Tech Industries	4,508,948		12	%
Telecommunications	3,580,442		10	%
Media: Broadcasting & Subscription	2,031,588		6	%
Services: Business	1,960,850		5	%
Wholesale	1,807,778		5	%
Construction & Building	1,644,070		5	%
Media: Diversified and Production	1,644,000		4	%
Transportation: Cargo	1,469,647		4	%
Financial	811,267		2	%
Consumer goods: Durable	705,287		2	%
Banking, Finance, Insurance & Real Estate	663,305		2	%
Beverage, Food & Tobacco	436,673		1	%
Energy: Oil & Gas	365,000		1	%
Media: Advertising, Printing & Publishing	332,812		1	%
Retail	1,774		0%
Total	$	36,663,703	100	%

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

NOTE ~~7 –~~8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

~~Under existing accounting guidance,~~

The following table presents the fair value ~~is defined~~of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of September 30, 2020 and June 30, 2020, respectively:



	As of September 30, 2020
	Level 1		Level 2		Level 3		Total
Portfolio Investments
Senior Secured Loans-First Lien	$	—	$	—	$	30,140,704	$	30,140,704
Senior Secured Loans-Second Lien	—		—		812,905		812,905
Senior Secured Notes	—		—		846,716		846,716
Structured Subordinated Notes	—		—		5,181,861		5,181,861
Equity/Other	—		—		867,914		867,914
Total Portfolio Investments	$	—	$	—	$	37,850,100	$	37,850,100

	As of June 30, 2020
	Level 1		Level 2		Level 3		Total
Portfolio Investments
Senior Secured Loans-First Lien	$	—	$	—	$	28,653,561	$	28,653,561
Senior Secured Loans-Second Lien	—		—		1,213,148		1,213,148
Senior Secured Notes	—		—		811,267		811,267
Structured Subordinated Notes	—		—		5,198,739		5,198,739
Equity/Other	—		—		786,988		786,988
Total Portfolio Investments	$	—	$	—	$	36,663,703	$	36,663,703

Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, management and the independent valuation firm look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. In determining the range of values for debt instruments where market quotations are not available, except CLOs, management and the independent valuation firm estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow technique was then applied using the appropriate yield to maturity as the ~~price~~discount rate, to determine a range of values. In determining the range of values for equity investments of portfolio companies , the enterprise value was determined by applying a market approach such as using earnings before income interest, tax, depreciation and amortization (“EBITDA”) multiples, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions and/or an income approach, such as the discounted cash flow technique. The enterprise value technique may also be used to value debt investments which are credit impaired. For stressed debt and equity investments, asset recovery analysis was used.

In determining the range of values for our investments in CLOs, the independent valuation firm uses a discounted multi-path cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view as well as to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market and certain benchmark credit indices are considered, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the corresponding multi-path cash flow model.

Our portfolio consists of residual interests in CLOs, which involve a number of significant risks. CLOs are typically very highly levered (10 - 14 times), and therefore the residual interest tranches that we invest in are subject to a higher degree of risk of total loss. In particular, investors in CLO residual interests indirectly bear risks of the underlying loan investments held by such CLOs. We generally have the right to receive payments only from the CLOs, and generally do not have direct rights against the underlying borrowers or the entity that sponsored the CLOs. While the CLOs we target generally enable the investor to acquire interests in a pool of senior loans without the expenses associated with directly holding the same investments, the prices of indices and securities underlying our CLOs will rise or fall. These prices (and, therefore, the prices of the CLOs) will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally. The failure by a CLO

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

investment in which we invest to satisfy financial covenants, including with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to us. In the event that a CLO fails certain tests, holders of debt senior to us would be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting CLO or any other investment we may make. If any of these occur, it could materially and adversely affect our operating results and cash flows.

The interests we have acquired in CLOs are generally thinly traded or have only a limited trading market. CLOs are typically privately offered and sold, even in the secondary market. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLO residual interests carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) our investments in CLO tranches will likely be subordinate to other senior classes of note tranches thereof; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO investment or unexpected investment results. Our net asset value may also decline over time if our principal recovery with respect to CLO residual interests is less than the cost of those investments. Our CLO investments and/or the CLOs’ underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on our value.

An increase in LIBOR would materially increase the CLO’s financing costs. Since most of the collateral positions within the CLOs have LIBOR floors, there may not be corresponding increases in investment income (if LIBOR increases but stays below the LIBOR floor rate of such investments) resulting in materially smaller distribution payments to the residual interest investors.

On July 27, 2017, the Financial Conduct Authority (“FCA”) announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR rates after 2021 (the “FCA Announcement”). Furthermore, in the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. On August 24, 2017, the Federal Reserve Board requested public comment on a proposal by the Federal Reserve Bank of New York, in cooperation with the Office of Financial Research, to produce three new reference rates intended to serve as alternatives to LIBOR. These alternative rates are based on overnight repurchase agreement transactions secured by U.S. Treasury Securities. On December 12, 2017, following consideration of public comments, the Federal Reserve Board concluded that the public would benefit if the Federal Reserve Bank of New York published the three proposed reference rates as alternatives to LIBOR (the “Federal Reserve Board Notice”). The Federal Reserve Bank of New York said that the publication of these alternative rates is targeted to commence by mid-2018.

At this time, it is not possible to predict the effect of the FCA Announcement, the Federal Reserve Board Notice, or other regulatory changes or announcements, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the United Kingdom, the United States or elsewhere. As such, the potential effect of any such event on our net investment income cannot yet be determined. The CLOs in which the Company is invested generally contemplate a scenario where LIBOR is no longer available by requiring the CLO administrator to calculate a replacement rate primarily through dealer polling on the applicable measurement date. However, there is uncertainty regarding the effectiveness of the dealer polling processes, including the willingness of banks to provide such quotations, which could adversely impact our net investment income. Recently, the CLOs we are invested in have included, or have been amended to include, language permitting the CLO investment manager to implement a market replacement rate (like SOFR) upon the occurrence of certain material disruption events. However, we cannot ensure that all CLOs in which we are invested will have such provisions, nor can we ensure the CLO investment managers will undertake the suggested amendments when able. In addition, the effect of a phase out of LIBOR on U.S. senior secured loans, the underlying assets of the CLOs in which we invest, is currently unclear. To the extent that any replacement rate utilized for senior secured loans differs from that utilized for a CLO that holds those loans, the CLO would ~~receive upon selling~~experience an interest rate mismatch between its assets and liabilities which could have an adverse impact on the Company’s net investment ~~or pay to transfer~~income and portfolio returns.

We hold more than a ~~liability~~10% interest in certain foreign corporations that are treated as controlled foreign corporations (“CFC”) for U.S. federal income tax purposes (including our residual interest tranche investments in CLOs). Therefore, we are treated as receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporations in an ~~orderly transaction~~amount equal to our pro rata share of the corporation’s income for that tax year (including both ordinary earnings and capital gains). We are required to include such deemed distributions from a CFC in our taxable income and we are required to distribute at least 90% of such income to maintain our RIC status, regardless of whether or not the CFC makes an actual distribution during such year.

If we acquire shares in “passive foreign investment companies” (“PFICs”) (including residual interest tranche investments in CLOs that are PFICs), we may be subject to federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is distributed as a taxable dividend to our stockholders. Certain elections may be available to mitigate or eliminate such tax on excess distributions, but such elections (if available) will generally require us to recognize our share of the PFIC’s income for each year regardless of whether we receive any distributions from such PFICs. We must nonetheless distribute such income to maintain our status as a RIC.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

Legislation enacted in 2010 imposes a withholding tax of 30% on payments of U.S. source interest and dividends paid after December 31, 2013, or gross proceeds from the disposition of an instrument that produces U.S. source interest or dividends paid after December 31, 2016, to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its United States account holders and its United States owners. Most CLOs in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If a CLO in which we invest fails to properly comply with these reporting requirements, it could reduce the amounts available to distribute to residual interest and junior debt holders in such CLO vehicle, which could materially and adversely affect our operating results and cash flows.

If we are required to include amounts in income prior to receiving distributions representing such income, we may have to sell some of our investments at times and/or at prices management would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose.

A portion of the Company’s portfolio is concentrated in CLOs, which is subject to a risk of loss if that sector experiences a market ~~participant~~downturn. The Company is subject to credit risk in the ~~principal or most advantageous market~~normal course of pursuing its investment objectives. The Company’s maximum risk of loss from credit risk for the ~~investment. This accounting guidance emphasizes that valuation techniques maximize~~portfolio of CLO investments is the ~~use~~inability of ~~observable market inputs and minimize~~ the ~~use of unobservable inputs. Inputs refer broadly~~CLOs collateral managers to return up to the ~~assumptions that market participants would use~~cost value due to defaults occurring in ~~pricing an asset~~the underlying loans of the CLOs.

Investments in CLOs residual interests generally offer less liquidity than other investment grade or ~~liability, including assumptions about risk. Inputs~~high-yield corporate debt, and may be ~~observable or unobservable. Observable inputs~~subject to certain transfer restrictions. The Company’s ability to sell certain investments quickly in response to changes in economic and other conditions and to receive a fair price when selling such investments may be limited, which could prevent the Company from making sales to mitigate losses on such investments. In addition, CLOs are ~~inputs that reflect~~subject to the ~~assumptions market participants would use~~possibility of liquidation upon an event of default of certain minimum required coverage ratios, which could result in ~~pricing an asset or liability developed based on market data obtained from sources independent~~full loss of value to the CLOs interests and junior debt investors.

The fair value of the ~~Company. Unobservable inputs~~Company’s investments may be significantly affected by changes in interest rates. The Company’s investments in senior secured loans through CLOs are ~~inputs that reflect~~sensitive to interest rate levels and volatility. In the ~~assumptions market participants would use~~event of a significant rising interest rate environment and/or economic downturn, loan defaults may increase and result in ~~pricing an asset or liability developed~~credit losses which may adversely affect the Company’s cash flow, fair value of its investments and operating results. In the event of a declining interest rate environment, a faster than anticipated rate of prepayments is likely to result in a lower than anticipated yield.

The significant unobservable input used to value our investments based on the ~~best information available~~yield technique and discounted cash flow technique is the market yield (or applicable discount rate) used to discount the estimated future cash flows expected to be received from the underlying investment, which includes both future principal and interest/dividend payments. Increases or decreases in the ~~circumstances.~~

market yield (or applicable discount rate) would result in a decrease or increase, respectively, in the fair value measurement. Management and the independent valuation firms consider the following factors when selecting market yields or discount rates: risk of default, rating of the investment and comparable company investments, and call provisions.

The ~~Company classifies the~~significant unobservable inputs used to value our investments based on the EV analysis may include market multiples of specified financial measures such as EBITDA, net income, or book value of identified guideline public companies, implied valuation multiples from precedent M&A transactions, and/or discount rates applied in a discounted cash flow technique. The independent valuation firm identifies a population of publicly traded companies with similar operations and key attributes to that of the portfolio company. Using valuation and operating metrics of these guideline public companies and/or as implied by relevant precedent transactions, a range of multiples of the latest twelve months EBITDA, or other measure ~~these fair values into~~such as net income or book value, is typically calculated. The independent valuation firm utilizes the ~~following hierarchy as defined by current accounting guidance:~~

~~Level 1~~~~: Inputs that are quoted prices (unadjusted)~~determined multiples to estimate the portfolio company’s EV generally based on the latest twelve months EBITDA of the portfolio company (or other meaningful measure). Increases or decreases in ~~active markets for identical assets~~the multiple would result in an increase or ~~liabilities.~~

~~Level 2~~~~: Inputs that are quoted prices for similar assets~~decrease, respectively, in EV which would result in an increase or ~~liabilities~~decrease in ~~active markets.~~

~~Level 3~~~~: Inputs that are unobservable for an asset or liability.~~

~~A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to~~ the fair value ~~measurement.~~

measurement of the debt of controlled companies and/or equity investment, as applicable. In certain instances, a discounted cash flow analysis may be considered in estimating EV, in which case, discount rates based on a weighted average cost of capital and application of the capital asset pricing model may be utilized.

~~Table~~Changes in market yields, discount rates, EBITDA multiples, each in isolation, may change the fair value measurement of ~~Contents~~

certain of our investments. Generally, an increase in market yields, discount rates or capitalization rates, or a decrease in EBITDA (or other) multiples may result in a decrease in the fair value measurement of certain of our investments.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the currently assigned valuations.

As of September 30, ~~2017~~2020 and June 30, 2020, the cost basis of our loans on non-accrual status amounted to $241,321 and $241,201, respectively, with fair value of $102,297 and $159,788, respectively. The fair values of these investments represent approximately 0.2% and 0.4% of our total assets at fair value as of September 30, 2020 and June 30, 2020, respectively.

Impact of the novel coronavirus (“Wuhan Virus”) pandemic

The U.S. capital markets are experiencing a period of extreme volatility and disruption. In December ~~31, 2016,~~2019, a novel strain of coronavirus (the "Wuhan Virus") surfaced in Wuhan, China. The Wuhan Virus has been declared a pandemic by the ~~Company’s~~World Health Organization and, in response to the outbreak, the U.S. Health and Human Services Secretary has declared a public health emergency in the United States. The Wuhan Virus has had a devastating impact on the global economy, including the U.S. economy, and has resulted in a global economic rescission.

Many states, including those in which we and our portfolio companies operate, have issued orders requiring the closure of non-essential businesses and/or requiring residents to stay at home. The Wuhan Virus pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, or the reintroduction of business shutdowns, cancellations of and restrictions on events and travel, significant reductions in demand for certain goods and services, reductions in and restrictions on business activity and financial transactions, supply chain interruptions and overall economic and financial market instability both globally and in the United States. Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter. While several countries, as well as certain states, counties and cities in the United States, have begun to lift the public health restrictions with a view to reopening their economies, recurring Wuhan Virus outbreaks have led to the re-introduction of such restrictions in certain states in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. Additionally, the absence of viable treatment options or a vaccine could lead people to continue to self-isolate and not participate in the economy at prepandemic levels for a prolonged period of time. Further, the extent and strength of any economic recovery after the Wuhan Virus pandemic abates, including following any "second wave" or other intensifying of the pandemic, is uncertain and subject to various factors and conditions. Even after the Wuhan Virus pandemic subsides, the U.S. economy and most other major global economies may continue to experience a recession.

The Wuhan Virus pandemic (including the preventative measures taken in response thereto) has to date (i) created significant business disruption issues for certain of our portfolio companies, and (ii) materially and adversely impacted the value and performance of certain of our portfolio companies and SSN investments. The Wuhan Virus pandemic is having a particularly adverse impact on industries in which certain of our portfolio companies operate, including energy, hospitality, travel, retail and restaurants. Certain of our portfolio companies in other industries have also been significantly impacted. The Wuhan Virus pandemic is continuing as of the filing date of this Quarterly Report, and its extended duration may have further adverse impacts on our portfolio companies and SSN investments ~~were categorized~~after September 30, 2020, including for the reasons described herein. Although on March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which contains provisions intended to mitigate the adverse economic effects of the Wuhan Virus pandemic, it is uncertain whether, or how much, our portfolio companies will be able to benefit from the CARES Act or any other subsequent legislation intended to provide financial relief or assistance. As a result of this disruption and the pressures on their liquidity, certain of our portfolio companies have been, or may continue to be, incentivized to draw on most, if not all, of the unfunded portion of any revolving or delayed draw term loans made by us, subject to availability under the terms of such loans.

As a BDC, we are required to carry our investments at fair value as ~~follows~~determined in good faith by our board of directors. Depending on market conditions, we could incur substantial losses in future periods, which could have a material adverse impact on our business, financial condition, and results of operations.

Although it is difficult to predict the extent of the impact of the Wuhan Virus outbreak on the underlying CLO vehicles we invest in, the failure by a CLO vehicle to satisfy certain financial covenants, including with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to us. In the event the CLO vehicle fails certain tests, holders of debt senior to us may be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting CLO vehicle or any other investment we may make. If any of these occur, it could materially and adversely affect our operating results and cash flows.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

The Wuhan Virus pandemic has adversely impacted the fair value ~~hierarchy):~~

Valuation Inputs Nine months ended September 30, 2017 (Unaudited) Year ended December 31, 2016
Level 1—Price quotations in active markets $ — $ —
Level 2—Significant other observable inputs — —
Level 3—Significant unobservable inputs 11,485,679 10,604,173
Total $ 11,485,679 $ 10,604,173

~~The Company’s~~of our investments as of September 30, ~~2017 consisted~~2020, and the values assigned as of debt securities that are traded on a private over-the-counter market for institutional investors, a subordinated convertible note and two equity investments. The Company valued its debt investments by using the midpoint of the prevailing bid and ask prices from dealers on thethis date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. The determination of fair market value for the equity positions were determined by considering, among other factors, various income scenarios and multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues, waterfall and liquidation priority and market comparables, book value multiples, economic profits and portfolio multiples.

~~The Company~~ may ~~periodically benchmark the bid and ask prices it receives~~differ materially from the third-party pricing services against the actual prices at which the Company purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Company’s management in purchasing and selling these investments, the Company believesvalues that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that these valuation inputs are classified as Level 3 within the fair value hierarchy. The Company’s board of directors reviewed and approved the valuation determinations madewe may ultimately realize with respect to ~~these investments in a manner consistent with~~our investments. The impact of the ~~Company’s valuation process.~~

~~The significant unobservable inputs used~~Wuhan Virus pandemic may not yet be fully reflected in the ~~market approach of fair value measurement~~valuation of our investments as our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that is often from a time period earlier, generally two to three months, than the ~~market multiples~~quarter for which we are reporting. Additionally, we may not have yet received information or certifications from our portfolio companies that indicate any or the full extent of ~~EBITDA of comparable companies. The Company selects~~declining performance or non-compliance with debt covenants, as applicable, as a ~~population of companies for each investment with similar operations and attributes~~result of the ~~portfolio company. Using these guideline companies’ data,~~Wuhan Virus pandemic. As a ~~range of multiples of enterprise value to EBITDA is calculated. The Company selects percentages from~~result, our valuations at September 30, 2020 may not show the ~~range of multiples for purposes of determining the portfolio company’s estimated enterprise value based on said multiple and generally the latest twelve months’ EBITDA~~complete or continuing impact of the ~~portfolio company. Significant increases or decreases~~Wuhan Virus pandemic and the resulting measures taken in ~~enterprise value may result in increases or decreases~~response thereto. In addition, write downs in the ~~fair~~ value ~~estimate~~ of ~~the equity investment.~~

our investments have reduced, and any additional write downs may further reduce, our net asset value (and, as a result, our asset coverage calculation). Accordingly, we may continue to incur additional net unrealized losses or may incur realized losses after September 30, 2020, which could have a material adverse effect on our business, financial condition and results of operations.

~~Table of Contents~~

The following is a reconciliation for the ~~nine~~three months ended September 30, ~~2017~~2020 and ~~year ended December 31, 2016~~2019, of investments for which significant unobservable inputs (Level 3) were used in determining fair value:

For the nine months ended September 30, 2017
Senior Secured Loans - First Lien Senior Secured Loans - Second Lien Subordinated Convertible Debt Equity/Other Total
Fair value at beginning of period $ 6,761,313 $ 1,967,658 $ 646,901 $ 1,228,301 $ 10,604,173
Accretion of discount (amortization of premium) 16,507 7,411 — — 23,918
Net realized gain (loss) 50,020 41,114 — — 91,134
Net change in unrealized appreciation (depreciation) (60,034 ) (5,295 ) (666,389 ) (718,307 ) (1,450,025 )
Purchases 3,897,250 2,221,250 — — 6,118,500
Paid-in-kind interest — — 19,488 — 19,488
Sales and redemptions (3,044,009 ) (877,500 ) — — (3,921,509 )
Net transfers in or out of Level 3 — — — — —
Fair value at end of period $ 7,621,047 $ 3,354,638 $ — $ 509,994 $ 11,485,679

The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date $ (60,034 ) $ (5,295 ) $ (666,389 ) $ (718,307 ) $ (1,450,025 )

For the year ended December 31, 2016
Senior Secured Loans - First Lien Senior Secured Loans - Second Lien Subordinated Convertible Debt Equity/Other Total
Fair value at beginning of period $ 2,389,377 $ 1,041,875 $ 609,219 $ 1,488,266 $ 5,528,737
Accretion of discount (amortization of premium) 12,124 6,512 — — 18,636
Net realized gain (loss) 19,433 298 — — 19,731
Net change in unrealized appreciation (depreciation) 117,410 (33,527 ) — (259,965 ) (176,082 )
Purchases 5,083,375 1,202,500 — — 6,285,875
Paid-in-kind interest — — 37,682 — 37,682
Sales and redemptions (860,406 ) (250,000 ) — — (1,110,406 )
Net transfers in or out of Level 3 — — — — —
Fair value at end of period $ 6,761,313 $ 1,967,658 $ 646,901 $ 1,228,301 $ 10,604,173

The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date $ 117,410 $ (33,527 ) $ — $ (259,965 ) $ (176,082 )



	Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
	Senior Secured Loans - First Lien			Senior Secured Loans - Second Lien			Senior Secured Notes		Equity/Other		Structured Subordinated Notes			Total
Fair Value at June 30, 2020	$	28,653,561		$	1,213,148		$	811,267	$	—	$	5,198,739		$	35,876,715
Net realized gains on investments	—			11,050			—		—		—			11,050
Net change in unrealized gains (losses) on investments	453,431			34,126			30,940		—		(134,840		)	383,657
Net realized and unrealized gains (losses) on investments	453,431			45,176			30,940		—		(134,840		)	394,707
Purchases of investments	1,234,517			—			—		—		—			1,234,517
Payment-in-kind interest	7,507			—			—		—		—			7,507
Accretion (amortization) of purchase discount and premium, net	36,823			831			4,509		—		117,962			160,125
Repayments and sales of portfolio investments	(245,135		)	(446,250		)	—		—		—			(691,385		)
Transfers within Level 3⁽¹⁾	—			—			—		—		—			—
Transfers into Level 3⁽¹⁾	—			—			—		—		—			—
Transfers out of Level 3⁽¹⁾	—			—			—		—		—			—
Fair Value at September 30, 2020	$	30,140,704		$	812,905		$	846,716	$	—	$	5,181,861		$	36,982,186

Net change in unrealized gains (losses) attributable to Level 3 investments still held at the end of the period	$	453,431		$	36,934		$	30,940	$	—	$	(134,840	)	$	386,465

(1) Transfer are assumed to have occurred at the beginning of the quarter during which the asset was transferred. There were no transfers in or out of Level 3 during the period ended September 30, 2020.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020



	Affiliate Investments (5.00% to 24.99% voting control)
	Equity/Other		Total
Fair Value at June 30, 2020	$	786,988	$	786,988
Net realized (losses) on investments	—		—
Net change in unrealized gains (losses) on investments	80,926		80,926
Net realized and unrealized gains (losses) on investments	80,926		80,926
Fair Value at September 30, 2020	$	867,914	$	867,914

Net change in unrealized gains (losses) attributable to Level 3 investments still held at the end of the period	$	80,926	$	80,926



	Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
	Senior Secured Loans - First Lien			Senior Secured Loans - Second Lien			Equity/Other		Structured Subordinated notes			Total
Fair Value at June 30, 2019	$	15,825,870		$	2,505,227		$	—	$	4,715,487		$	23,046,584
Net realized (losses) on investments	(264,029		)	—			—		—			(264,029		)
Net change in unrealized gains (losses) on investments	(157,812		)	(317,167		)	—		(111,199		)	(586,178		)
Net realized and unrealized gains (losses) on investments	(421,841		)	(317,167		)	—		(111,199		)	(850,207		)
Purchases of investments	9,502,125			—			—		438,860			9,940,985
Payment-in-kind interest	—			29			—		—			29
Accretion (amortization) of purchase discount and premium, net	33,389			1,512			—		8,250			43,151
Repayments and sales of portfolio investments	(1,622,438		)	—			—		—			(1,622,438		)
Transfers within Level 3⁽¹⁾	—			—			—		—			—
Transfers in out of Level 3⁽¹⁾	—			—			—		—			—
Fair Value at September 30, 2019	$	23,317,105		$	2,189,601		$	—	$	5,051,398		$	30,558,104

Net change in unrealized gains (losses) attributable to Level 3 investments still held at the end of the period	$	(197,337	)	$	(317,138	)	$	—	$	(111,199	)	$	(625,674	)

(1) Transfer are assumed to have occurred at the beginning of the quarter during which the asset was transferred. There were no transfers in or out of Level 3 during the period ended September 30, 2019.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020



	Affiliate Investments (5.00% to 24.99% voting control)
	Equity/Other		Total
Fair Value at June 30, 2019	$	570,816	$	570,816
Net realized (losses) on investments	—		—
Net change in unrealized gains (losses) on investments	22,598		22,598
Net realized and unrealized gains (losses) on investments	22,598		22,598
Fair Value at September 30, 2019	$	593,414	$	593,414

Net change in unrealized gains (losses) attributable to Level 3 investments still held at the end of the period	$	22,598	$	22,598

The ~~valuation techniques and~~following table provides quantitative information regarding significant unobservable inputs used in ~~recurring~~the fair value measurement of Level 3 ~~fair value measurements of assets~~investments as of September 30, ~~2017 were as follows:~~

Asset Category Fair Value Primary Valuation Technique Unobservable Inputs Range Weighted Average
Senior Secured First Lien Debt 7,621,047 Market quotes Indicative dealer quotes 76.50 - 102.00 99.17
Senior Secured Second Lien Debt 3,354,639 Market quotes Indicative dealer quotes 44.50 - 102.13 98.11
Subordinated Debt — Distribution waterfall/ liquidation priorities N/A N/A N/A
Equity/Other — Distribution waterfall/ liquidation priorities N/A N/A N/A
Equity/Other 509,993 Market comparables EBITDA multiples (x) 7.15x - 9.15x 8.15x
Total $ 11,485,679

2020:

Unobservable Inputs

Asset Category

Fair Value

Primary Valuation
Technique

Inputs

Range

Weighted
Average

Senior Secured First Lien Debt

5,738,425

Market quotes

Indicative dealer quotes

53.17%-99.76%

96.69%

Senior Secured First Lien Debt

24,402,279

Discounted Cash Flow (Yield Analysis)

Market Yield

4.78%-10.52%

6.89%

Senior Secured Second Lien
Debt

812,905

Market quotes

Indicative dealer quotes

25.00%-81.50%

74.66%

Senior Secured Notes

846,716

Discounted Cash Flow (Yield Analysis)

Market Yield

20.61%-21.73%

21.17%

Equity/Other

867,914

Enterprise Value Waterfall (Market Approach)

EBITDA multiples (x)

0.00x-7.50x

7.50x

Subordinated Structured Notes

5,181,861

Discounted Cash Flow

Discount Rate

20.51%- 36.54%⁽¹⁾

27.29%⁽¹⁾

37,850,100

(1) Represents the implied discount rate based on our internally generated single-cash flows that is derived from the fair value estimated by the corresponding multi-path cash flow model utilized by the independent valuation firm.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

Asset Category Fair Value Primary Valuation Technique Unobservable Inputs Range Weighted Average
Senior Secured First Lien Debt 6,761,313 Market quotes Indicative dealer quotes 79.50 - 102.00 99.63
Senior Secured Second Lien Debt 1,967,658 Market quotes Indicative dealer quotes 58.00 - 102.19 94.31
Subordinated Debt 646,901 Market comparables Book value multiples (x) 14.6% - 17.4%/ 2.4x - 34.0x 15%
Equity/Other 537,229 Market comparables Book value multiples (x) 14.6% - 17.4%/ 2.4x - 34.0x 15%
Equity/Other 691,072 Market comparables EBITDA multiples (x) 7.15x - 9.15x 8.15x
Total $ 10,604,173

2020:

~~Table of Contents~~

Unobservable Inputs

Asset Category

Fair Value

Primary Valuation
Technique

Inputs

Range

Weighted
Average

Senior Secured First Lien Debt

3,595,102

Market quotes

Indicative dealer quotes

71.25%-97.68%

92.69%

Senior Secured First Lien Debt

25,058,459

Discounted Cash Flow (Yield Analysis)

Market Yield

4.38%-12.50%

7.22%

Senior Secured Second Lien
Debt

1,213,148

Market quotes

Indicative dealer quotes

15.00%-100.10%

80.15%

Senior Secured Notes

811,267

Discounted Cash Flow (Yield Analysis)

Market Yield

21.48%-22.64%

22.06%

Equity/Other

786,988

Enterprise Value Waterfall (Market Approach)

EBITDA multiples (x)

0.00x-7.50x

7.50x

Subordinated Structured Notes

5,198,739

Discounted Cash Flow

Discount Rate

17.83%- 32.90%⁽¹⁾

24.13%⁽¹⁾

36,663,703

~~NOTE 8 – FINANCIAL HIGHLIGHTS~~

~~The following is a schedule of financial highlights of the Company for~~For the three months ended September 30, ~~2017~~2020 and 2019, there were no structuring fees recognized as part of interest income on the Consolidated Statement of Operations. For the three months ended September 30, 2020 and 2019, accelerated original issue discount due to repayments included in interest income totaled $0 and $18,969, respectively.

NOTE 9 - MERGER

Effective March 31, 2019, TPIC and PWAY entered into a tax free business combination. Concurrent with the Merger, TPIC, the legal acquirer, was renamed TP Flexible Income Fund, Inc. As a result of the Merger, the Company issued 775,193 shares of the Company’s common stock to the former shareholders of PWAY and all shares of PWAY were retired. On and effective August 5, 2020, the Company changed its name to Prospect Flexible Income Fund, Inc. from TP Flexible Income Fund, Inc. by filing Articles of Amendment to its Fourth Articles of Amendment and Restatement, as amended and supplemented.

For financial reporting purposes, the Merger was treated as a recapitalization of PWAY followed by the reverse acquisition of TPIC by PWAY for a purchase price equivalent to the fair value of TPIC’s net assets.

Consistent with tax free business combinations of investment companies, for financial reporting purposes, the reverse merger accounting was recorded at fair value; however, the cost basis of the investments received from TPIC was carried forward to align ongoing financial reporting of the Company’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Further, the components of net assets of the Company reflect the combined components of net assets of both PWAY and TPIC.

In accordance with the accounting and presentation for reverse acquisitions, the historical financial statements of the Company, prior to the date of the Merger reflect the financial positions and results of operations of PWAY, with the exception of the components of net assets described above, with the results of operations of TPIC being included commencing on April 1, 2019. Effective with the completion of the Merger, TPIC, changed its fiscal year ~~ended December~~end to be the last day of June consistent with PWAY’s fiscal year.

In the Merger, common shareholders of PWAY received newly-issued common shares in the Company having an aggregate net asset value equal to the aggregate net asset value of their holdings of PWAY Class A and/or PWAY Class I common shares, as applicable, as determined at the close of business on March 27, 2019, as permitted by the Merger agreement. The differences in net asset value between March 27, 2019 and March 31, ~~2016:~~

Nine Months Ended September 30, 2017 (Unaudited) Year Ended December 31, 2016
Per Share Data:
Net asset value, beginning of period $ 13.55 $ 13.75
Results of operations⁽¹⁾
Net investment income (loss) (0.07 ) 0.48
Net realized and unrealized appreciation (depreciation) on investments⁽²⁾ (1.09 ) (0.14 )
Net increase (decrease) in net assets resulting from operations (1.16 ) 0.34
Stockholder distributions⁽³⁾
Distributions from net investment income (0.31 ) (0.51 )
Distributions from net realized gain on investments (0.04 ) —
Net decrease in net assets resulting from stockholder distributions (0.35 ) (0.51 )
Capital share transactions
Issuance of common stock⁽⁴⁾ 0.07 (0.03 )
Offering costs⁽¹⁾ — —
Net increase (decrease) in net assets resulting from capital share transactions 0.07 (0.03 )
Net asset value, end of period $ 12.11 $ 13.55
Shares outstanding, end of period 1,338,155 976,406
Total return⁽⁵⁾ -8.1 % 2.2 %
Ratio/Supplemental Data:
Net assets, end of period $ 16,206,374 $ 13,228,702
Ratio of net investment income to average net assets -0.5 % 3.6 %
Ratio of total operating expenses to average net assets 5.1 % 7.2 %
Ratio of expenses reimbursed by sponsor to average net assets 0.5 % 6.5 %
Ratio of expense recoupment payable to sponsor to average net assets 0.0 % 0.0 %
Ratio of capital gain incentive fee to average net assets 0.00 % -0.34 %
Ratio of net operating expenses to average net assets 4.6 % 0.7 %
Portfolio turnover⁽⁶⁾ 26.6 % 10.8 %

~~(1)~~	~~The per share data was derived by using the weighted average shares outstanding for the nine months ended September 30, 2017 and the year ended December 31, 2016.~~
~~(2)~~	The amount shown for a share outstanding throughout the year may not agree with the change in the aggregate gains and losses in portfolio securities for the year because of the timing of sales of the Company’s shares in relation to fluctuating market values for the portfolio.
~~(3)~~	~~The per share data for distributions reflects the actual amount of distributions paid per share during the applicable period.~~
~~(4)~~	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 Company’s continuous public offering and pursuant to the Company’s distribution reinvestment plan. The issuance of common stock at an offering price, net of sales commissions and dealer manager fees, that is greater or less than the net asset value per share results in an increase or decrease in net asset value per share.
~~(5)~~	The total return for each period presented was calculated by taking the net asset value per share as of the end of the applicable period, adding the cash distributions per share which were declared during the applicable calendar year and dividing the total by the net asset value per share at the beginning of the applicable year. The total return does not consider the effect of the sales load from the sale of the Company’s common stock. The total return includes the effect of the issuance of shares at a net offering price that is greater than net asset value per share, which causes an increase in net asset value per share. The historical calculation of total return in the table should not be considered a representation of the Company’s future total return, which may be greater or less than the return shown in the table due to a number of factors, including the Company’s ability or inability to make investments in companies that meet its investment criteria, the interest rate payable on the debt securities the Company acquires, the level of the Company’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which the Company encounters competition in its 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. The total return calculations set forth above represent the total return on the Company’s investment portfolio during the applicable period and are calculated in accordance with GAAP. These return figures do not represent an actual return to stockholders.
~~(6)~~	~~Portfolio turnover for the nine months ended September 30, 2017 is not annualized.~~

2019 were not material. Relevant details pertaining to the Merger are as follows:

PROSPECT FLEXIBLE INCOME FUND, INC.

~~Table~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020



	NAV/Share ($)		Conversion Ratio
Triton Pacific Investment Corporation, Inc.	$	10.48	N/A
Pathway Capital Opportunity Fund, Inc.: Class A	$	13.46	1.2848
Pathway Capital Opportunity Fund, Inc.: Class I	$	13.50	1.2884

Investments

The cost, fair value and net unrealized appreciation (depreciation) of ~~Contents~~the investments of TPIC as of the date of the Merger, was as follows:



	TPIC
Cost of investments	$	12,106,879
Fair value of investments	11,431,241
Net unrealized appreciation (depreciation) on investments	$	(675,638	)

Common Shares

The common shares outstanding, net assets applicable to common shares and NAV per common share outstanding immediately before and after the Merger were as follows:



Accounting Acquirer - Prior to Merger	PWAY Class A		PWAY Class I
Common shares outstanding	570,431		32,834
Net assets applicable to common shares	$	7,679,839	$	443,296
NAV per common share	$	13.46	$	13.50
Legal Acquiring Fund - Prior to Merger	TPIC
Common shares outstanding	1,614,221
Net assets applicable to common shares	$	16,915,592
NAV per common share	$	10.48
Legal Acquiring Fund - Post Merger	FLEX
Common shares outstanding	2,403,349
Net assets applicable to common shares	$	25,086,682
NAV per common share	$	10.44

Cost and Expenses

In connection with the Merger, PWAY incurred certain associated costs and expenses of approximately $731,000, of which $709,000 of these costs and expenses were expensed by PWAY and $22,000 were expensed by the Company. In connection with the Merger, TPIC incurred certain associated costs and expenses of approximately $682,000, of which $636,000 were expensed by TPIC and $46,000 were expensed by the Company.

Purchase Price Allocation

PWAY as the accounting acquiror acquired 32% of the voting interests of TPIC. The below summarized the purchase price allocation from TPIC:

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020



	PWAY as acquirer
Value of Common Stock Issued	$	17,052,546
Assets acquired:
Investments	11,431,241
Cash and cash equivalents	5,055,456
Other assets	607,163
Total assets acquired	17,093,860
Total liabilities assumed	41,314
Net assets acquired	17,052,546
Total purchase price	$	17,052,546

NOTE ~~9 –~~10 - COMMITMENTS AND CONTINGENCIES

The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. Management has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.

The Company has a conditional obligation to reimburse the Adviser for any amounts funded by the Adviser under the Expense Limitation Agreement for any payments made by the Adviser. The Expense Limitation Agreement payments are subject to repayment by the Company within the three years following the end of the quarter in which the payment was made by the Adviser; provided that any such repayments shall be subject to the then-applicable expense limitation, if any, and the limit that was in effect at the time when the Adviser made the payment that is subject to repayment.

The Company is not currently subject to any material legal proceedings and, to the Company’s knowledge, no material legal proceedings are threatened against the Company. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies. While the outcome of ~~these~~any legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material adverse effect upon its financial condition or results of operations.

As of September 30, 2020 and June 30, 2020, the Company had an unfunded commitment relating to Amerilife Holdings, LLC for $39,773 and $85,227, respectively. The fair value of our delayed draw term loans was zero as of September 30, 2020 and June 30, 2020.

NOTE 11 - REVOLVING CREDIT FACILITY

On May 16, 2019, the Company established a $50 million senior secured revolving credit facility (the “Credit Facility”) with Royal Bank of Canada, a Canadian chartered bank, acting as administrative agent. In connection with the Credit Facility, the SPV, as borrower, and each of the other parties thereto entered into a Revolving Loan Agreement, dated as of May 16, 2019 (the “Loan Agreement”).

The Credit Facility matures on May 21, 2029 and interest on borrowings under the Credit Facility when established was three-month LIBOR plus 1.55%. On May 11, 2020, the Company agreed to the increased interest rate of three-month LIBOR plus 2.20% on the Credit Facility for the period between May 16, 2020 to November 15, 2020. The Credit Facility is secured by substantially all of the SPV’s properties and assets. Under the Loan Agreement, the SPV has made certain customary representations and warranties and is required to comply with various covenants, including reporting requirements and other customary requirements for similar credit facilities. The Loan Agreement includes usual and customary events of default for credit facilities of this nature.

As of September 30, 2020 and June 30, 2020, we had $21,000,000 outstanding on our Credit Facility. As of September 30, 2020 and June 30, 2020, the investments used as collateral for the Credit Facility had an aggregate fair value of $30,843,330 and $29,705,147, respectively, which represents 81% of our total investments for each period. As permitted by ASC 825-10-25, we have not elected to fair value our Credit Facility on Consolidated Statements of Assets and Liabilities. The fair value of the Credit Facility was $21,000,0000 and is categorized as Level 2 under ASC 820 as of September 30, 2020.

In connection with the origination of the Credit Facility, we incurred $588,355 fees, all of which are being amortized over the term of the facility in accordance with ASC 470-50. As of September 30, 2020 and June 30, 2020, $507,345 and $522,163, respectively, remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities.

During the three months ended September 30, 2020 and 2019, we recorded $146,648 and $100,170, respectively, of interest costs and amortization of financing costs on the Credit Facility as interest expense.

For the three months ended September 30, 2020 and 2019, the average stated interest rate (i.e., rate in effect plus the spread) was 2.45% and 3.75%, respectively. For the three months ended September 30, 2020 and 2019, average outstanding borrowings for Credit Facility was $21,000,000 and $9,190,217, respectively.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

NOTE 12- FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the three months ended September 30, 2020 and 2019 :



	Three Months Ended September 30,
	2020			2019
	(unaudited)			(unaudited)
Per Share Data^(a):
Net asset value at beginning of period	$	8.28		$	9.88
Net investment income	0.01			0.06
Net realized and change in unrealized gains (losses) on investments	0.20			(0.31		)
Net increase (decrease) in net assets resulting from operations	0.21			(0.25		)
Distributions^(b)
Return of capital distributions	(0.15		)	(0.17		)
Dividends from net investment income	(0.01		)	—
Total Distributions	(0.16		)	(0.17		)
Other ^(c)	0.01			0.01
Net asset value at end of period	$	8.34		$	9.47
Total return based on net asset value ^(d)	2.62		%	(2.64		)%

Supplemental Data:
Net assets at end of period	$	19,883,702		$	22,647,013
Average net assets	$	19,721,052		$	23,028,864
Average shares outstanding	2,364,156			2,382,257
Ratio to average net assets:
Total annual expenses	20.28		%	13.12		%
Total annual expenses (after expense limitation agreement)	16.56		%	10.39		%
Net investment income (loss)	0.64		%	2.62		%

Portfolio Turnover	1.86		%	1.95		%

(a) Calculated based on weighted average shares outstanding.
(b) The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the year. Distributions per share are rounded to the nearest $0.01.
(c) The amount shown represents the balancing figure derived from the other figures in the schedule, and is primarily attributable to the accretive effects from the sales of the Company’s shares and the effects of share repurchases during the period.
(d) Total return is based upon the change in net asset value per share between the opening and ending net asset values per share during the year and assumes that distributions are reinvested in accordance with the Company’s distribution reinvestment plan. The computation does not reflect the sales load for any class of shares. Total return based on market value is not presented since the Company’s shares are not publicly traded. Total return has not been annualized.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

The following is a schedule of financial highlights for each of the five years ended in the period ended June 30, 2020:



	Year Ended			Year Ended			Year Ended			Year Ended
	June 30, 2020			June 30, 2019^(e)			June 30, 2018^(f)			June 30, 2018^(f)
							PWAY Class A			PWAY Class I
Per Share Data^(a):
Net asset value at beginning of period	9.88			$	9.89		$	13.53		$	13.53
Net investment income	0.24			0.91			0.79			0.81
Net realized and unrealized (losses) on investments	(1.22		)	(1.11		)	(0.80		)	(0.79		)
Net increase (decrease) in net assets resulting from operations	(0.98		)	(0.20		)	(0.01		)	0.02
Distributions^(b)
Return of capital distributions	(0.57		)	(0.54		)	(0.62		)	(0.62		)
Dividends from net investment income	(0.15		)	(0.03		)	(0.24		)	(0.24		)
Total Distributions	(0.72		)	(0.57		)	(0.86		)	(0.86		)
Offering costs				0.61			—			—
Other ^(c)	0.10			0.15			0.05			0.04
Net asset value at end of year	$	8.28		$	9.88		$	12.71		$	12.73
Total return based on net asset value ^(d)	(10.13		)%	7.52		%	0.18		%	0.33		%

Supplemental Data:
Net assets at end of year	$	19,558,402		$	23,410,715		$	7,933,028		$	420,136
Average net assets	$	21,234,189		$	12,536,923		$	8,314,166		$	439,787
Average shares outstanding	2,366,005			1,297,582			622,683			32,914
Ratio to average net assets:
Total annual expenses	16.41		%	23.48		%	22.69		%	22.43		%
Total annual expenses (after expense support agreement/expense limitation agreement)	13.07		%	9.11		%	8.91		%	8.73		%
Net investment income	2.67		%	2.15		%	5.92		%	6.04		%

Portfolio Turnover	24.56%			93.42		%	37.42		%	37.42		%

(a) Calculated based on weighted average shares outstanding.
(b) The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the year. Distributions per share are rounded to the nearest $0.01.
(c) The amount shown represents the balancing figure derived from the other figures in the schedule, and is primarily attributable to the accretive effects from the sales of the Company’s shares and the effects of share repurchases during the year.
(d) Total return is based upon the change in net asset value per share between the opening and ending net asset values per share during the year and assumes that distributions are reinvested in accordance with the Company’s distribution reinvestment plan. The computation does not reflect the sales load for any class of shares. Total return based on market value is not presented since the Company’s shares are not publicly traded.
(e) Data presented for the year ended June 30, 2019 includes the shareholder activity of PWAY Class A and Class I shares, prior to the Merger and conversion into shares of the Company. The net asset value per share at beginning of year has been adjusted by the exchange ratio used in the Merger.
(f)The per share data and total return include the shareholder activity prior to PWAY’s conversion to an interval fund. PWAY Class A Shares include the activity for Class R shares prior to such conversion and PWAY Class I Shares include activity for PWAY Class I Shares and Class RIA shares prior to such conversion.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020



	Year Ended			Period Ended
	June 30, 2017			June 30, 2016 ^(a)
	PWAY Class R, RIA and I			PWAY Class R, RIA and I
Per Share Data^(b):
Net asset value, beginning of year or period	$	12.81		$	13.80
Net investment income	0.71			1.21
Net realized and unrealized gains (losses) on investments	0.68			(0.03		)
Net increase in net assets resulting from operations	1.39			1.18
Return of capital distributions^(c)	(0.92		)	(0.75		)
Offering costs	0.03			(0.62		)
Other^(d)	0.22			(0.80		)
Net asset value, end of year or period	$	13.53		$	12.81
Total return, based on NAV^(e)	13.20		%	(1.75		)%

Supplemental Data:
Net assets, end of year or period	$	8,405,744		$	5,976,355
Average net assets	$	7,508,410		$	3,597,990
Average shares outstanding	550,843			341,596
Ratio to average net assets:
Expenses without expense support payment	22.05		%	36.65		%
Expenses after expense support payment	10.52		%	3.41		%
Net investment income	5.19		%	11.50		%

Portfolio turnover	27.54		%	4.27		%

^(a)The net asset value at the beginning of the period is the net offering price as of August 25, 2015, which is the date that the Company satisfied its minimum offering requirement by raising over $2.5 million from selling shares to persons not affiliated with the Company or the Adviser (the “Minimum Offering Requirement”), and as a result, broke escrow and commenced making investments.
^(b)Calculated based on weighted average shares outstanding.
^(c)The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the year or period. Distributions per share are rounded to the nearest $0.01.
^(d)The amount shown represents the balancing figure derived from the other figures in the schedule, and is primarily attributable to the accretive effects from the sales of the Company’s shares and the effects of share repurchases during the year or period.
^(e)Total return is based upon the change in net asset value per share between the opening and ending net asset values per share during the year or period and assumes that distributions are reinvested in accordance with the Company’s dividend reinvestment plan. The computation does not reflect the sales load for any class of shares. Total return based on market value is not presented since the Company’s shares are not publicly traded. For the period less than one year, total return is not annualized.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020



Revolving Credit Facility	Total Amount Outstanding		Asset Coverage per Unit(1)		Involuntary Liquidating Preference per Unit(2)	Average Market Value per Unit(2)
September 30, 2020	$	21,000,000	$	1,947	—	—
June 30, 2020	$	21,000,000	$	1,931	—	—
March 31, 2020	$	21,000,000	$	1,914	—	—
December 31, 2019	$	21,000,000	$	2,018	—	—
September 30, 2019	$	15,500,000	$	2,461	—	—
June 30, 2019	$	5,500,000	$	5,256	—	—

(1) The asset coverage ratio is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by secured senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the Asset Coverage Per Unit.
(2) This column is inapplicable.

NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

The following table sets forth selected financial data for each quarter within the three years ending June 30, 2021:



		Investment Income				Net Investment Income
Quarter Ended		Total	Per Share⁽¹⁾	Per Share (PWAY Class A)⁽¹⁾⁽²⁾	Per Share (PWAY Class I)⁽¹⁾⁽²⁾	Total	Per Share⁽¹⁾	Per Share (PWAY Class A)⁽¹⁾⁽²⁾	Per Share (PWAY Class I⁽¹⁾⁽²⁾
September 30, 2018		$314,140	N/A	$0.49	$0.49	$(279,116)	N/A	$(0.43)	$(0.44)
December 31, 2018		284,830	N/A	0.46	0.46	(46,857)	N/A	(0.08)	(0.07)
March 31, 2019		251,386	N/A	0.41	0.41	1,304,197	N/A	2.13	2.17
June 30, 2019		560,370	$0.23	N/A	N/A	(709,296)	$(0.30)	N/A	N/A

September 30, 2019		$748,644	$0.31	N/A	N/A	$150,724	$0.06	N/A	N/A
December 31, 2019		853,848	0.36	N/A	N/A	50,584	0.02	N/A	N/A
March 31, 2020		900,371	0.38	N/A	N/A	219,821	0.09	N/A	N/A
June 30, 2020		839,755	0.35	N/A	N/A	145,913	0.06	N/A	N/A

September 30, 2020		$848,045	$0.36	N/A	N/A	$31,475	$0.01	N/A	N/A

(1)	Per share amounts are calculated using the weighted average number of common shares outstanding for the period presented. As such, the sum of the quarterly per share amounts above will not necessarily equal the per share amounts for the fiscal year.
(2)	Data presented for September 30, 2018-March 31, 2019 includes the shareholder activity of PWAY Class A and Class I shares, prior to the merger.

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020



			Net Realized and Unrealized (Losses) Gains				Net Increase (Decrease) in Net Assets from Operations
		Quarter Ended	Total	Per Share⁽¹⁾	Per Share (PWAY Class A)⁽¹⁾⁽²⁾	Per Share (PWAY Class I⁽¹⁾⁽²⁾	Total	Per Share⁽¹⁾	Per Share (PWAY Class A)⁽¹⁾⁽²⁾	Per Share (PWAY Class I⁽¹⁾⁽²⁾
September 30, 2018			$(142,584)	N/A	$(0.22)	$(0.23)	$(421,700)	N/A	$(0.65)	$(0.66)
December 31, 2018			(847,927)	N/A	(1.36)	(1.37)	(894,784)	N/A	(1.43)	(1.44)
March 31, 2019			175,862	N/A	0.29	0.28	1,480,059	N/A	2.42	2.45
June 30, 2019			(238,167)	$(0.10)	N/A	N/A	(947,463)	$(0.40)	N/A	N/A

September 30, 2019			$(744,821)	$(0.31)	N/A	N/A	$(594,097)	$(0.25)	N/A	N/A
December 31, 2019			(347,245)	(0.15)	N/A	N/A	(296,661)	(0.13)	N/A	N/A
March 31, 2020			(2,566,076)	(1.09)	N/A	N/A	(2,346,255)	(1.00)	N/A	N/A
June 30, 2020			773,450	0.32	N/A	N/A	919,363	0.38	N/A	N/A

September 30, 2020			$475,633	$0.20	N/A	N/A	$507,108	$0.21	N/A	N/A

(1	)	Per share amounts are calculated using the weighted average number of common shares outstanding for the period presented. As such, the sum of the quarterly per share amounts above will not necessarily equal the per share amounts for the fiscal year.
(2	)	Data presented for September 30, 2018-March 31, 2019 includes the shareholder activity of PWAY Class A and Class I shares, prior to the merger.

NOTE 14 - NET INCREASE (DECREASE) IN NET ASSETS PER SHARE

The following information sets forth the computation of net increase in net assets resulting from operations per share during the three months ended September 30, 2020 and 2019.



	Three Months Ended September 30,
		2020		2019
Net increase (decrease) in net assets resulting from operations		$	507,108	$	(594,097	)
Weighted average common shares outstanding		2,364,156		2,382,257
Net increase (decrease) in net assets resulting from operations per share		$	0.21	$	(0.25	)

NOTE ~~10 –~~15 - SUBSEQUENT EVENTS

Management has evaluated all known subsequent events through the date the accompanying consolidated financial statements were available to be issued on November ~~14, 2017,~~12, 2020 and notes the following:

Sales of Common Stock

For the period beginning October 1, ~~2017~~2020 and ending November ~~14, 2017,~~12, 2020, the Company sold ~~29,739.12~~2,769 shares of its common stock for ~~total~~ gross proceeds of ~~$403,200,~~$25,000 and issued ~~amounts~~16,355 shares pursuant to its distribution reinvestment plan in the amount of ~~$25,167,~~$138,858.

Investment Activity

On October 1, 2020, the Company funded the outstanding $39,773 of the delayed draw term loan commitment for our investment in Amerilife Holdings, LLC portfolio company.

Offering Price

On November 6, 2020, our Board of Directors determined to change the public offering price per share of our Class A shares of common stock from $9.33 per share to $9.40 per share. The change in the public offering price became effective as of November

PROSPECT FLEXIBLE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) September 30, 2020

12, 2020 and ~~repurchased 5,968.22~~first applied to subscriptions in good order received on or after November 9, 2020.

Repurchase Offer

On September 17, 2020, under our share repurchase program, we made an offer to purchase (the "Tender Offer") up to the number of shares of our issued and outstanding Class A common stock we can repurchase with the proceeds we receive from the issuance of shares under our distribution reinvestment plan prior to the expiration of the Tender Offer. The total proceeds under the distribution reinvestment plan prior to the Tender Offer was $229,113. The Tender Offer is for cash at a price equal to the net offering price per share determined as of October 20, 2020 (“Purchase Price”). The offer expired at 4:00 P.M., Eastern Time, on October 16, 2020 and a total ~~cost~~ of ~~$73,409~~181,137 shares were validly tendered and not withdrawn pursuant to the ~~Company’s Repurchase Program.~~

offer. In accordance with the terms of the offer, the Company purchased 26,986 shares validly tendered and not withdrawn at a price equal to $8.49 per share for an aggregate purchase price of approximately $229,113.

~~Table~~

Revolving Credit Facility

Effective November 10, 2020, the end date of ~~Contents~~the ramp period of the Credit Facility was extended from November 15, 2020 to May 14, 2021. As a result, the interest rate on borrowings under the Credit Facility of the three-month LIBOR plus 2.20% was extended from the period between May 16, 2020 to November 15, 2020 to the period between May 16, 2020 to May 14, 2021.

Distributions

On November 6, 2020, the Board of Directors declared distributions for the months of December 2020, January 2021 and February 2021, which reflect a targeted annualized distribution rate of 7.0% based on the current offering price. The distributions have weekly record dates as of the close of business of each week in December 2020, January 2021 and February 2021 and equal a weekly amount of $0.01262 per share of common stock. The distributions will be payable monthly to stockholders of record as of the weekly record dates set forth below.



Record Date	Payment Date	FLEX Class A Common Shares, per share
December 4, 11, 18 and 25, 2020	January 4, 2021	$	0.05048
January 4, 8, 15, 22 and 29, 2021	February 5, 2021	$	0.06310
February 5, 12, 19 and 26, 2021	March 5, 2021	$	0.05048

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

Operations

The following discussion ~~and analysis~~ should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this quarterly report on Form ~~10-Q.~~

~~Except as otherwise specified, references~~10-Q (the "Quarterly Report"). In addition to ~~“we,” “us,” “our,” or~~historical information, the ~~“Company,” refer to Triton Pacific Investment Corporation, Inc.~~

~~Forward-Looking Statements~~

~~Some~~following discussion and other parts of ~~the statements in~~ this ~~quarterly report on Form 10-Q constitute~~Quarterly Report contain forward-looking statements, which relate to future events or our performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including, but not limited to, statements as to:

●

~~our future operating results;~~

●

~~our business prospects and the prospects of our portfolio companies;~~

●

~~changes in the economy;~~

●

~~risk associated with possible disruptions in our operations or the economy generally;~~

●

~~the effect of investments that we expect to make;~~

●

~~our contractual arrangements and relationships with third parties;~~

●

~~actual and potential conflicts of interest with Triton Pacific Adviser, LLC and its affiliates;~~

●

~~the dependence of our future success on the general economy and its effect on the industries in which we invest;~~

●

~~the ability of our portfolio companies to achieve their objectives;~~

●

~~the use of borrowed money to finance a portion of our investments;~~

●

~~the adequacy of our financing sources and working capital;~~

●

~~the timing of cash flows, if any, from the operations of our portfolio companies;~~

●

~~the ability of Triton Pacific Adviser, LLC and its Sub-Adviser to locate suitable investments for us and to monitor and administer our investments;~~

●

~~the ability of Triton Pacific Adviser, LLC, its Sub-Adviser and its affiliates to attract and retain highly talented professionals;~~

●

~~our ability to qualify and maintain our qualification as a RIC and as a BDC; and~~

●

~~the effect of changes in laws or regulations affecting our operations or to tax legislation and our tax position.~~

~~Such forward-looking statements may include statements preceded by, followed by or~~information that otherwise include the words “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. The forward looking statements contained in this annual report involveinvolves risks and uncertainties. Our actual results ~~could~~may differ ~~materially~~significantly from ~~those~~any results expressed or implied ~~or expressed in the~~by these forward-looking statements ~~for any reason, including~~due to the factors ~~set forth as “Risk~~discussed in Part II, “Item 1A. Risk Factors” ~~in this report~~ and ~~in our last effective registration statement filed on form N-2 dated May 2, 2017, filed with~~“Forward-Looking Statements” appearing elsewhere herein.

The terms “FLEX,” “the Company,” “we,” “us” and “our” mean Prospect Flexible Income Fund, Inc. unless the ~~Securities and Exchange Commission (the “SEC”) on the same day.~~

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, shareholders are advised to consult any additional disclosures that we may make directly to them or through reports that we have filed or in the future may file with the SEC, including quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports on Form 8-K.

context specifically requires otherwise.

~~Table of Contents~~

Overview

We are a publicly registered, non-traded fund focused on private equity, structured as a business development company that primarily makes equity, structured equity, and debt investments in small to mid-sized private U.S. companies. Structured equity refers to derivative investment products, including convertible notes and warrants, designed to facilitate highly customized risk-return objectives. Our private equity investments will generally take the form of direct investments in common and preferred equity, as well as structured equity investments such as convertible notes and warrants.

We are an externally managed, non-diversified, closed-end ~~non-diversified~~ management investment company that has elected to be ~~treated~~regulated as a business development company ~~under the Company Act. Triton Pacific Adviser, LLC~~ (“~~Triton Pacific Adviser”~~BDC”)~~, which is a registered investment adviser~~ under the Investment ~~Advisers~~Company Act of 1940, as amended (the ~~“Advisers~~“1940 Act”) serves as our investment adviser and TFA Associates, LLC serves as our administrator. Each of these companies is affiliated with Triton Pacific Group, Inc., a private equity investment management firm, and its subsidiary, Triton Pacific Capital Partners, LLC (“TPCP”), a private equity investment fund management company, each focused on debt and equity investments in small to mid-sized private companies.

~~We primarily make debt investments likely to generate current income and equity investments in small to mid-sized private U.S. companies either alone or together with other private equity sponsors.~~. Our investment objective is to generate current income and, ~~long-term~~as a secondary objective, capital ~~appreciation.~~

~~Triton Pacific Adviser is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing~~appreciation by targeting investment opportunities ~~structuring investments~~with favorable risk-adjusted returns. We intend to meet our investment objective by primarily lending to and ~~monitoring our portfolio on an ongoing basis. In addition,~~investing in the debt of privately-owned U.S. middle market companies, which we define as companies with annual revenue between $50 million and $2.5 billion. We have elected and intend to continue to qualify annually ~~qualify~~ to be ~~treated,~~taxed for U.S. federal income tax purposes as a regulated investment company ~~(“RIC”~~("RIC"), under ~~subchapter M of~~ the Internal Revenue Code of 1986, as amended (the ~~“Code”~~"Code").

~~Our investment objectives are to maximize~~

On March 31, 2019, Pathway Capital Opportunity Fund, Inc. (“PWAY”) merged with and into us (the “Merger”). As the combined surviving company, we were renamed as TP Flexible Income Fund, Inc. (we were formerly known as Triton Pacific Investment Corporation, Inc. (“TPIC”)). In connection with the Merger, Prospect Flexible Income Management, LLC (the "Adviser"), an affiliate of PWAY, became our investment ~~portfolio’s total return~~adviser, and Prospect Administration LLC (the "Administrator" or "Prospect Administration"), an affiliate of the Adviser, became our administrator. Although PWAY merged with and into us, PWAY is considered the accounting survivor of the Merger and its historical financial statements are included and discussed herein and in other applicable reports that we file with the SEC.

On and effective August 5, 2020, we changed our name to Prospect Flexible Income Fund, Inc. from TP Flexible Income Fund, Inc. by ~~generating long-term capital appreciation from~~filing Articles of Amendment to our ~~private equity investments~~Fourth Articles of Amendment and ~~current income from~~Restatement, as amended and supplemented.

We have engaged Triton Pacific Securities, LLC (the "Dealer Manager") to serve as the dealer manager for our ~~debt investments. We intend~~offering. The dealer manager is not required to ~~make both our debt and private equity investments in small~~sell any specific number or dollar amount of shares but will use its best efforts to ~~mid-sized private U.S. companies either alone or together with other private equity sponsors.~~

sell the shares offered.

We are offering for sale a maximum amount of $300,000,000 our shares of common stock on a "best efforts" basis. We are currently offering to sell our ~~common stock.We commenced our initial continuous public~~Class A Shares up to the maximum offering amount, at an offering price of shares through our initial registration statement (File No. 333-174873) that was declared effective by the SEC on September 4, 2012. Rule 415 promulgated under the Securities Act requires that a registration statement not be used for more than three years from its effective date, subject to a 180-day grace period. On September 2, 2015, we filed a registration statement with the SEC (File No. 333-206730) in order to continue our continuous public offering of shares for an additional three years or until all of the shares registered herein are sold. The registration statement for our follow-on offering was declared effective by the SEC on March 17, 2016 and our most-recent post-effective amendment to our registration was declared effective by the SEC on May 3, 2017.$9.40 per Class A Share. As of November ~~14, 2017,~~12, 2020, we have sold a total of ~~1,369,940.31~~2,376,931 shares of common stock, ~~for gross proceeds of approximately $20,155,355,~~ including 221,942 shares issued pursuant to our distribution reinvestment plan, ~~in the amount~~for gross proceeds of ~~$551,848,~~approximately $31,740,423, including the reduction due to ~~$451,426~~($2,990,965) in shares repurchased pursuant to the Company’s ~~Repurchase Program,~~share repurchase program and 14,815 shares of common stock sold to Triton Pacific Adviser, LLC, our former investment adviser (the “Former Adviser”) in exchange for gross proceeds of $200,003.

~~Our investment objective is~~ As a result of the Merger, the Company issued 775,193 shares.

On March 11, 2020, the World Health Organization declared the Wuhan Virus a global pandemic and recommended containment and mitigation measures worldwide. As of the three months ended September 30, 2020, and subsequent to ~~maximize our portfolio’s total return by generating current income from our debt investments~~September 30, 2020, the Wuhan Virus pandemic has had a significant impact on the U.S. and ~~long-term capital appreciation from our equity investments.~~global economy and on us. We ~~will seek to meet~~have experienced an increase in unrealized depreciation of our investment ~~objectives by:~~

~~-Focusing primarily~~portfolio due to decreases in fair value of its investments attributable to the impact of the Wuhan Virus pandemic on ~~debt and equity investments in small and mid-sized private U.S. companies, which we define as companies with annual revenue~~the markets.

The extent of ~~from $10 million to $ 250 million at~~ the ~~time~~impact of ~~investment;~~

~~Table of Contents~~

~~-Leveraging~~ the ~~experience and expertise~~Wuhan Virus pandemic on the financial performance of our ~~Adviser,~~current and future investments will depend on future developments, including the duration and spread of the virus, related advisories and restrictions, and the health of the financial markets and economy, all of which are highly uncertain and cannot be predicted. To the extent our portfolio companies are adversely impacted by the effects of the Wuhan Virus pandemic, it may have a material adverse impact on its ~~Sub-Adviser~~future net investment income, the fair value of its portfolio investments, its financial condition and ~~its affiliates in sourcing, evaluating~~the results of operations and ~~structuring transactions;~~

~~-Employing disciplined underwriting policies and rigorous portfolio management;~~

~~-Developing our equity portfolio through our Adviser’s Value Enhancement Program, more fully discussed below in “Investment Objectives and Policies – Investment Process”; and~~

~~-Maintaining a well-balanced portfolio.~~

We intend to be active in both debt and equity investing. We will seek to provide current income to our investors through our debt investments while seeking to enhance our investors’ overall returns through long term capital appreciationfinancial condition of our ~~equity investments. We intend to be opportunistic in our investment approach, allocating our investments between debt and equity, depending on:~~

~~-Investment opportunities~~

~~-Market conditions~~

~~-Perceived Risk~~

Depending on the amount of capital we raise in the Offering and subject to subsequent changes in our capital base, we expect that our investments will generally range between $250,000 and $25 million per portfolio company, although this range may change in the discretion of our Adviser, subject to oversight by our board of directors. Prior to raising sufficient capital to finance investments in this range and as a strategy to manage excess cash, we may make smaller and differing types of investments in, for example, high quality debt securities, and other public and private yield-oriented debt and equity securities, directly and through our Sub-Adviser.

companies.

Our Adviser ~~has engaged ZAIS to act as our investment sub-adviser. ZAIS assists our~~

Our Adviser ~~with identifying, evaluating, negotiating and structuring syndicated debt investments and makes investment recommendations for approval by our Adviser. ZAIS~~ is a Delaware limited liability company and is a registered as an investment adviser under the Advisers ~~Act~~Act. Our Adviser is controlled by Prospect Capital Management, who owns a majority of its voting units. Mr. Eliasek is the principal officer of the Adviser.

First Quarter Highlights

Investment Transactions

We seek to be a long-term investor with our portfolio companies. During the three months ended September 30, 2020, we purchased investment securities (excluding short-term securities) of $1,234,517. During the same three month period, sales and ~~had approximately $3.75 billion~~redemptions of investment securities (excluding short-term securities) were $691,385, resulting in ~~assets under management~~a total net portfolio growth of $543,132 for the three months ended September 30, 2020.

Debt Issuances and Redemptions

During the three months ended September 30, 2020, we drew $0 on our Credit Facility (as defined herein) for a total of $21,000,000 outstanding on our credit facility as of September 30, ~~2017. ZAIS is not~~2020. See "Credit Facility".

On June 9, 2020, under our share repurchase program, we made an ~~affiliate~~offer to purchase (the "Tender Offer") up to the number of ~~us or our Adviser and does not own any~~shares of our ~~shares.~~

~~We will generally source~~issued and outstanding Class A common stock we can repurchase with the proceeds we receive from the issuance of shares under our ~~private equity investments through third party intermediaries and our debt investments primarily through our Adviser and Sub-Adviser. We will invest only after we conduct a thorough evaluation~~distribution reinvestment plan prior to the expiration of the ~~risks and strategic opportunities~~Tender Offer. The Tender Offer is for cash at a price equal to the net offering price per share determined as of ~~an investment~~July 10, 2020 (“Purchase Price”). The offer expired at 4:00 P.M., Eastern Time, on July 8, 2020 and a ~~price (or interest rate in~~total of 65,266 shares were validly tendered and not withdrawn pursuant to the ~~case of debt investments) has been established that reflects~~offer. In accordance with the ~~intrinsic value~~terms of the ~~investment opportunity. We will endeavor~~offer, the Company purchased 28,786 shares validly tendered and not withdrawn at a price equal to ~~identify~~$8.25 per share for an aggregate purchase price of approximately $237,488.

On September 17, 2020, under our share repurchase program, we made an offer to purchase (the "Tender Offer") up to the best exit strategy for each private equity investment, including methodology (for example, a sale, company redemption, or public offering) and an appropriate time horizon. We will then attempt to influence the growth and developmentnumber of each portfolio company accordingly to maximize our potential return on investment using such exit strategy or another strategy that may become preferable due to changing market conditions. We anticipate that the holding period for mostshares of our ~~private equity investments will range~~issued and outstanding Class A common stock we can repurchase with the proceeds we receive from ~~four~~the issuance of shares under our distribution reinvestment plan prior to ~~six years, but~~the expiration of the Tender Offer. The total proceeds under the distribution reinvestment plan prior to the Tender Offer was $229,113. The Tender Offer is for cash at a price equal to the net offering price per share determined as of October 20, 2020 (“Purchase Price”). The offer expired at 4:00 P.M., Eastern Time, on October 16, 2020 and a total of 181,137 shares were validly tendered and not withdrawn pursuant to the offer. In accordance with the terms of the offer, the Company purchased 26,986 shares validly tendered and not withdrawn at a price equal to $8.49 per share for an aggregate purchase price of approximately $229,113.

Equity Issuances

As part of the dividend reinvestment plan, we ~~will be flexible~~issued 7,120, 8,839 and 6,794 shares of our common stock on July 6, 2020, August 8, 2020 and September 4, 2020, respectively. On October 2, 2020, we issued 7,247 of our common stock in ~~order to take advantage~~connection with the dividend reinvestment plan for September 2020 distributions. On November 6, 2020, we issued 9,108 shares of ~~market opportunities or to overcome unfavorable market conditions.~~

our common stock in connection with the dividend reinvestment plan for October 2020 distributions.

Investments

We intend to ~~generate~~primarily lend to and invest in the ~~majority~~debt of ~~our current income by investing~~privately-owned U.S. middle market companies. We may on occasion invest in smaller or larger companies if an attractive opportunity presents itself, especially when there are dislocations in the capital markets. We expect to focus primarily on making investments in syndicated senior secured first lien loans, syndicated senior secured second lien ~~secured~~ loans, and to a lesser extent, subordinated debt, of middle market companies in a broad range of industries. Syndicated secured loans refer to commercial loans provided by a group of ~~small~~lenders that are structured, arranged, and administered by one or several commercial or investment banks, known as arrangers. These loans are then sold (or syndicated) to ~~mid-sized private U.S. companies.~~other banks or institutional investors. Syndicated secured loans may have a first priority lien on a borrower’s assets (i.e., senior secured first lien loans), a second priority lien on a borrower’s assets (i.e., senior secured second lien loans), or a lower lien or unsecured position on the borrower’s assets (i.e., subordinated debt). We ~~may purchase interests in loans through secondary market transactions in the “over-the-counter” market for institutional loans or directly from~~expect our target ~~companies as primary market investments. In connection~~credit investments will typically have initial maturities between three and ten years and generally range in size between $1 million and $100 million, although the investment size will vary with the size of our capital base. We expect that the majority of our debt investments wewill bear interest at floating interest rates, but our portfolio may also include fixed-rate investments. We also expect to make our investments directly through the primary issuance by the borrower or in the secondary market.

We will generally source our investments primarily through our Adviser. We believe the investment management team of our Adviser has a significant amount of experience in the credit business, including originating, underwriting, principal investing and loan structuring. Our Adviser, through Prospect Capital Management, has access to 93 professionals, 40 of whom perform investment advisory functions.

We expect to dynamically allocate our assets in varying types of investments based on ~~occasion receive equity interests such~~our analysis of the credit markets, which may result in our portfolio becoming more concentrated in particular types of credit instruments (such as ~~warrants or options as additional consideration. The~~ senior secured loans) and ~~second lien secured loans~~less invested in ~~which we invest generally will have stated terms~~other types of three to seven years and any subordinated investments that we make generally will have stated terms of up to ten years. However, there is no limit on the maturity or duration of any security we may hold in our portfolio.credit instruments. The loans in which we intend to invest are often rated by a nationally recognized ratings organization, and generally carry a rating below investment grade (rated lower than “Baa3” by Moody’s Investors Service or lower than “BBB-” by Standard & Poor’s Corporation –- also known as “high yield” or “junk bonds”). However, we may also invest in non-rated debt securities.

~~Table~~To seek to enhance our returns, we may employ leverage as market conditions permit and at the discretion of ~~Contents~~

our Adviser, but in no event will leverage employed exceed the maximum amount permitted by the 1940 Act.

As part of our investment objective to generate current income, we expect that at least 70% of our investments will consist primarily of syndicated senior secured first lien loans, syndicated senior secured second lien loans, and to a lesser extent, subordinated debt. We expect that up to 30% of our investments will consist of other securities, including private equity (both common and preferred), dividend-paying equity, royalties, and the equity and junior debt tranches of collateralized loan obligations ("CLOs"), which we also refer to as subordinated structured notes ("SSNs"). The senior secured loans underlying our CLO investments are expected typically to be BB or B rated (non-investment grade, which are often referred to as “high yield” or “junk”) and in limited circumstances, unrated, senior secured loans.

As a BDC, we are subject to certain regulatory restrictions in making our investments. For example, we ~~generally will not be permitted~~have in the past and expect in the future to co-invest ~~alongside~~on a concurrent basis with certain affiliates, consistent with applicable regulations and our allocation procedures. On January 13, 2020, the parent company of the Adviser ~~including TPCP and certain of its affiliates, unless we obtain~~received an exemptive order from the SEC granting the ability to negotiate terms, other than price and quantity, of co-investment transactions with other funds managed by our Adviser or certain affiliates, including us, Prospect Capital Corporation and Priority Income Fund, Inc., subject to certain conditions included therein. Under the terms of the Order permitting us to co-invest with other funds managed by our Adviser or its affiliates, a majority of our independent directors who have no financial interest in the transaction must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is ~~otherwise permitted under~~consistent with the interests of our stockholders and is consistent with our investment objective and strategies. The Order also imposes reporting and record keeping requirements and limitations on transactional fees. We may only co-invest with certain entities affiliated with our Adviser in negotiated transactions originated by our Adviser or its affiliates in accordance with such Order and existing regulatory ~~guidance, such as syndicated~~guidance. See Note 4 of the Consolidated Financial Statements. These co-investment transactions where price is the only negotiated term, and approval from our independent directors. We have applied for an exemptive relief order for co-investments, though there is no assurance that such exemptions will be granted, and in either instance, conflicts of interests with affiliates of our Adviser might exist. Should suchmay give rise to conflicts of interest ~~arise, we~~or perceived conflicts of interest among us and the other participating accounts. To mitigate these conflicts, our Adviser ~~have developed policies~~ and ~~procedures for dealing with such conflicts which require the Adviser~~its affiliates will seek to ~~(i) execute such~~allocate portfolio transactions for all of the participating investment accounts, including ~~ours,~~us, on a fair and equitable basis, taking into account such factors as the relative amounts of capital available for new investments, the ~~then-current~~applicable investment ~~objectives~~programs and portfolio positions, ~~of each party,~~the clients for which participation is appropriate and any other factors deemed appropriate and (ii) endeavor to obtain the advice of Adviser personnel not directly involved with the investment giving rise to the conflict as to such appropriateness and other factors as well as the fairness to all parties of the investment and its terms.appropriate. We intend to make all of our investments in compliance with the ~~Company~~1940 Act and in a manner that will not jeopardize our status as a BDC or RIC.

As a BDC, we are permitted under the ~~Company~~1940 Act to borrow funds to finance portfolio investments. To enhance our opportunity for gain, we intend to employ leverage as market conditions ~~permit, but, as required under~~permit. At the ~~Company Act, in no event will~~2019 Annual Meeting, TPIC’s stockholders approved a proposal allowing us to modify our asset coverage ratio requirement from 200% to 150%. As a result, we are allowed to increase our leverage ~~exceed 50%~~capacity effective as of ~~the value of our assets. While we have not yet determined the amount of leverage we will use, we do not currently anticipate that we would approach the 50% maximum level frequently or at all.~~March 16, 2019. The use of leverage, although it may increase returns, may also increase the risk of loss to our investors, particularly if the level of our leverage is high and the value of our investments declines.

Revenues

We generate revenue in the form of dividends, interest and capital gains on the debt securities, ~~and~~ equity interests and CLOs that we hold. In addition, we may generate revenue from our portfolio companies 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 will be recognized as earned.

Expenses

Our primary operating expenses will be the payment of advisory fees and other expenses under the ~~proposed investment adviser agreement.~~Investment Advisory Agreement with the Adviser (the "Investment Advisory Agreement"). The advisory fees will compensate our Adviser for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.

We will bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:

●

~~corporate and organizational expenses relating to offerings of our common stock, subject to limitations included in the investment advisory and management services agreement;~~

●

~~the cost of calculating our net asset value, including the cost of any third-party valuation services;~~

●

~~the cost of effecting sales and repurchase of shares of our common stock and other securities;~~

●

~~investment advisory fees;~~

●

fees payable to third parties relating to, or associated with, making investments and valuing investments, including fees and expenses associated with performing due diligence reviews of prospective investments;

●

~~transfer agent and custodial fees;~~

~~Table~~corporate and organizational expenses relating to offerings of ~~Contents~~

●

~~fees and expenses associated with marketing efforts;~~

●

~~federal and state registration fees;~~

●

~~federal, state and local taxes;~~

●

~~independent directors’ fees and expenses;~~

●

~~costs of proxy statements, stockholders’ reports and notices;~~

●

~~fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums;~~

●

~~direct costs such as printing, mailing, long distance telephone, and staff;~~

●

~~fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act;~~

●

~~costs associated with our reporting and compliance obligations under the Company Act and applicable federal and state securities laws;~~

●

~~brokerage commissions for our investments;~~

●

~~legal, accounting and other costs associated with structuring, negotiating, documenting and completing our investment transactions;~~

●

~~all other expenses incurred by our Adviser, in performing its obligations, subject to the limitations included in the investment adviser agreement; and~~

●

our common stock, subject to limitations included in the investment advisory and management services agreement;

the cost of calculating our net asset value, including the cost of any third-party valuation services;

the cost of effecting sales and repurchase of shares of our common stock and other securities;

investment advisory fees;

transfer agent and custodial fees;

fees and expenses associated with marketing efforts;

federal and state registration fees;

federal, state and local taxes;

independent directors’ fees and expenses;

costs of proxy statements, stockholders’ reports and notices;

fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums;

direct costs such as printing, mailing, long distance telephone, and staff;

fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act;

costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws;

brokerage commissions for our investments;

legal, accounting and other costs associated with structuring, negotiating, documenting and completing our investment transactions;

all other expenses incurred by our Adviser, in performing its obligations, subject to the limitations included in the Investment Advisory Agreement; and

all other expenses incurred by either our Administrator or us in connection with administering our business, including payments to our Administrator under the Administration Agreement (as defined herein) that will be based upon our allocable portion of its overhead and other expenses incurred in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our chief executive officer, chief compliance officer and chief financial officer and their respective staffs.

Reimbursement of our Administrator or us in connection with administering our business, including payments to our Administrator under the administration agreement that will be based upon our allocable portion of its overhead and other expenses incurred in performing its obligations under the administration agreement, including rent and our allocable portion of the costs of compensation and related expenses of our chief executive officer, chief compliance officer and chief financial officer and their respective staffs.

~~Reimbursement of TFA Associates, LLC~~ for Administrative Services

We will reimburse ~~TFA Associates~~our Administrator for the administrative expenses necessary for its performance of services to us. Such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. However, such reimbursement is made in an amount equal to the lower of the Administrator’s actual costs or the amount that we would be required to pay for comparable administrative services in the same geographic location. We will not reimburse our Administrator for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of ~~TFA Associates.~~

our Administrator.

Merger

Effective March 31, 2019, TPIC and PWAY entered into a tax free business combination. Concurrent with the Merger, TPIC, the legal acquirer, was renamed TP Flexible Income Fund, Inc., which was subsequently changed to Prospect Flexible Income Fund, Inc. on August 5, 5050, as discussed above. As a result of the Merger the Company issued 775,193 shares of the Company’s common stock to the former shareholders of PWAY and all shares of PWAY were retired.

for tax purposes. Further, the components of net assets of the Company reflect the combined components of net assets of both PWAY and TPIC.

In accordance with the accounting and presentation for reverse acquisitions, the historical financial statements of the Company, prior to the date of the Merger reflect the financial positions and results of operations of PWAY, with the results of operations of TPIC being included commencing on April 1, 2019. Effective with the completion of the Merger, TPIC, changed its fiscal year end to be the last day of June consistent with PWAY’s fiscal year.

In the Merger, common shareholders of PWAY received newly-issued common shares in the Company having an aggregate net asset value equal to the aggregate net asset value of their holdings of PWAY Class A and/or PWAY Class I common shares, as applicable, as determined at the close of business on March 27, 2019, as permitted by the Merger Agreement. The differences in net asset value between March 27, 2019 and March 31, 2019 were not material. Relevant details pertaining to the Merger are as follows:



	NAV/Share ($)		Conversion Ratio
Triton Pacific Investment Corporation, Inc.	$	10.48	N/A
Pathway Capital Opportunity Fund, Inc.: Class A	$	13.46	1.2848
Pathway Capital Opportunity Fund, Inc.: Class I	$	13.50	1.2884

Investments

The cost, fair value and net unrealized appreciation (depreciation) of the investments of TPIC as of the date of the Merger, was as follows:



	TPIC
Cost of investments	$	12,106,879
Fair value of investments	11,431,241
Net unrealized appreciation (depreciation) on investments	$	(675,638	)

Common Shares

The common shares outstanding, net assets applicable to common shares and NAV per common share outstanding immediately before and after the Merger were as follows:



Accounting Acquirer - Prior to Merger	PWAY Class A		PWAY Class I
Common shares outstanding	570,431		32,834
Net assets applicable to common shares	$	7,679,839	$	443,296
NAV per common share	$	13.46	$	13.50
Legal Acquiring Fund - Prior to Merger	TPIC
Common shares outstanding	1,614,221
Net assets applicable to common shares	$	16,915,592
NAV per common share	$	10.48
Legal Acquiring Fund - Post Merger	FLEX
Common shares outstanding	2,403,349
Net assets applicable to common shares	$	25,086,682
NAV per common share	$	10.44

Cost and Expenses

Purchase Price Allocation

PWAY as the accounting acquirer acquired 32% of the voting interests of TPIC. The below table summarizes the purchase price allocation from TPIC:



	PWAY as acquirer
Value of Common Stock Issued	$	17,052,546
Assets acquired:
Investments	11,431,241
Cash and cash equivalents	5,055,456
Other assets	607,163
Total assets acquired	17,093,860
Total liabilities assumed	41,314
Net assets acquired	17,052,546
Total purchase price	$	17,052,546

Portfolio and Investment Activity

During the ~~nine~~three months ended September 30, ~~2017,~~2020, we ~~made investments in portfolio companies totaling $6,118,500.~~purchased investment securities (excluding short-term securities) of $1,234,517. During the same ~~period, we sold investments~~three month, sales and ~~received principal repayments~~redemptions of ~~$3,926,031.~~investment securities (excluding short-term securities) were $691,385, resulting in a total net portfolio growth of $543,132 for the three months ended September 30, 2020. As of September 30, ~~2017,~~2020, our investment portfolio, with a total fair value of ~~$11,485,679,~~$37,850,100, consisted of interests in ~~33 portfolio companies (66.4%~~55 investments (82% in ~~first lien~~ senior secured loans, ~~29.2%~~2% in ~~second lien~~ senior secured ~~loans,~~notes, 2% in equity/other and ~~4.4%~~14% in ~~equity)~~CLO - subordinated notes). ~~The portfolio companies that comprised our portfolio as~~

During the three months ended September 30, 2020, the U.S. loan market exhibited a heightened level of ~~such date had an average annual EBITDA of approximately $162.4 million.~~volatility. As of September 30, ~~2017,~~2020, there remains to be global uncertainty surrounding the ~~investments~~Wuhan Virus pandemic, which has caused severe disruptions in ~~our debt portfolio were purchased at a weighted average price of 98.3% of par or stated value,~~the global economy and ~~the weighted average credit rating of the investments in our portfolio that were rated (constituting 95.6% of our portfolio based on~~has negatively impacted the fair value and performance of certain investments since the pandemic began. During quarter end September 30, 2020, U.S. loan prices rebounded and as a result, our ~~investments) was B2 based upon~~portfolio increased in value during the ~~Moody’s scale. Our estimated gross annual portfolio yield was 6.69% based upon~~three months ended September 30, 2020.

During the ~~amortized cost~~three months ended September 30, 2019, purchases of ~~our investments~~investment securities (excluding short-term securities) were $10,434,610. During the same period, sales and ~~was 7.41% on the debt portfolio alone. Our gross annual portfolio yield represents the expected yield to be generated by us on~~redemptions of investment securities (excluding short-term securities) were $1,622,438. As of September 30, 2019, our investment portfolio, ~~based on the composition~~with a total fair value of ~~our portfolio as~~$32,134,038, consisted of interests in 55 investments (79% in senior secured loans, 3% in senior unsecured bonds, 2% in equity/other and 16% in CLO - subordinated notes).

Portfolio Holdings

As of September 30, ~~2017. The~~2020, our investment portfolio, ~~yield does not represent an actual investment return to stockholders.~~

~~Table~~with a total fair value of ~~Contents~~

~~Total Portfolio Activity~~

$37,850,100, consisted of interests in 28 portfolio companies and 24 structured subordinated notes. The following ~~tables present~~table presents certain selected information regarding our portfolio ~~investment activity for the nine months ended September 30, 2017~~composition and ~~year ended December 31, 2016:~~

Net Investment Activity Nine months ended September 30, 2017 Year ended
December 31, 2016
Purchases $ 6,118,500 $ 6,285,875
Sales and Redemptions (3,921,509 ) (1,110,406 )
Net Portfolio Activity $ 2,196,991 $ 5,175,469

~~The following tables summarize the composition of our purchases~~weighted average yields as of September 30, ~~2017~~2020 and ~~December 31, 2016:~~

Nine months ended September 30, 2017
(Unaudited) Year Ended December 31, 2016
Investments at Amortized
Cost⁽¹⁾ Investments at Fair Value Fair Value Percentage of Total Portfolio Investments at Amortized
Cost⁽¹⁾ Investments at Fair Value Fair Value Percentage of Total Portfolio
Senior Secured Loans—First Lien $ 7,600,385 $ 7,621,047 67 % $ 6,680,615 $ 6,761,313 63 %
Senior Secured Loans—Second Lien 3,417,266 3,354,639 29 % 2,024,991 1,967,658 19 %
Subordinated Debt 666,389 — 0 % 646,901 646,901 6 %
Equity/Other 1,250,000 509,993 4 % 1,250,000 1,228,301 12 %
Total $ 12,934,040 $ 11,485,679 100 % $ 10,602,507 $ 10,604,173 100 %

~~(1)~~

~~Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.~~

September 30, 2017 December 31, 2016
Number of Portfolio Companies 33 35
% Variable Rate (based on fair value) 95.6% 82.3%
% Fixed Rate (based on fair value) 0.0% 6.1%
% Non-Income Producing Equity or Other Investments (based on fair value) 4.4% 11.6%
Average Annual EBITDA of Portfolio Companies 162.4MM 114.6MM
Weighted Average Credit Rating of Investments that were Rated B2 B2
% of Investments on Non-Accrual (based on amortized cost) — —
Gross Portfolio Yield Prior to Leverage (based on amortized cost) 7.4% 6.7%

June 30, 2020:

~~Table of Contents~~



	As of September 30, 2020			As of June 30, 2020
	Amortized Cost	Fair Value	As Percent of Total Fair Value	Amortized Cost	Fair Value	As Percent of Total Fair Value
Senior Secured Loans-First Lien	$30,341,339	$30,140,704	80%	$29,307,625	$28,653,561	78%
Senior Secured Loans-Second Lien	1,123,701	812,905	2%	1,558,072	1,213,148	4%
Equity/Other	681,111	867,914	2%	681,111	786,988	2%
Senior Secured Notes	960,495	846,716	2%	955,986	811,267	2%
Structured subordinated notes	6,490,081	5,181,861	14%	6,372,119	5,198,739	14%
Total	$39,596,727	$37,850,100	100%	$38,874,913	$36,663,703	100%

Number of portfolio companies	28			27
Number of Structured subordinated notes	24			24

% Variable Rate (based on fair value)⁽¹⁾	98%			98%
% Fixed Rate (based on fair value)⁽¹⁾	2%			2%

% Weighted Average Yield Variable Rate (based on principal outstanding)⁽¹⁾⁽²⁾	6%			7%
% Weighted Average Yield Fixed Rate (based on principal outstanding)⁽¹⁾	14%			14%
% Weighted Average Yield on Structured Subordinated Notes (based on cost)	18%			16%
% Weighted Average Yield on Fixed Rate Debt, Variable Rate Debt and Structured Subordinated Notes (based on cost)⁽³⁾	8%			8%

⁽¹⁾The interest rate by type information is calculated using the Company’s debt portfolio and excludes equity investments.
⁽²⁾ The interest rate by type information is calculated using the Company’s debt portfolio and excludes structured subordinated notes.
⁽³⁾ The interest rate by type information is calculated excluding the Company’s equity investments.

September 30, 2017
(Unaudited) December 31, 2016
Industry Classification Fair
Value Percentage of Portfolio Fair
Value Percentage of Portfolio
Automotive Repair, Services, and Parking $ — 0.0 % $ 122,459 1.2 %
Beverage, Food & Tobacco 1,658,531 14.4 % 1,162,891 11.0 %
Business Services 4,365,138 38.0 % 2,793,526 26.3 %
Consumer Services 1,178,419 10.3 % 955,659 9.0 %
Energy: Oil & Gas 341,928 3.0 % 346,500 3.3 %
Healthcare & Pharmaceuticals 949,567 8.3 % 1,403,008 13.2 %
High Tech Industries 875,938 7.6 % 1,016,921 9.6 %
Hotel, Gaming & Leisure 353,478 3.1 % — 0.0 %
Media: Diversified and Production 345,471 3.0 % 347,375 3.3 %
Metals & Mining 754,832 6.6 % 245,625 2.3 %
Paper and Allied Products — 0.0 % 115,294 1.0 %
Retail — 0.0 % 712,500 6.7 %
Specialty Finance — 0.0 % 1,184,130 11.2 %
Telecommunications 499,876 4.4 % — 0.0 %
Transportation: Cargo — 0.0 % — 0.0 %
Wholesale Trade-Nondurable Goods 162,501 1.3 % 198,285 1.9 %
Total $ 11,485,679 100.0 % $ 10,604,173 100.00 %

June 30, 2020:



	September 30, 2020
Industry	Investments at Amortized Cost		Percentage of Portfolio		Investments at Fair Value		Percentage of Portfolio
Structured Finance	$	6,490,081	16	%	$	5,181,861	14	%
Healthcare & Pharmaceuticals	4,552,160		12	%	4,986,227		13	%
Services: Consumer	4,523,961		11	%	4,499,229		12	%
High Tech Industries	4,108,861		10	%	4,112,159		11	%
Telecommunications	3,750,523		10	%	3,689,794		10	%
Media: Broadcasting & Subscription	2,189,889		6	%	2,028,497		5	%
Services: Business	1,975,885		5	%	1,954,348		5	%
Wholesale	1,961,599		5	%	1,875,111		5	%
Construction & Building	1,726,219		4	%	1,700,325		4	%
Media: Diversified and Production	1,580,941		4	%	1,656,200		4	%
Transportation: Cargo	1,466,482		4	%	1,466,482		4	%
Automotive	1,183,437		3	%	1,210,101		3	%
Financial	960,495		2	%	846,716		2	%
Banking, Finance, Insurance & Real Estate	707,167		2	%	707,167		2	%
Consumer goods: Durable	730,386		2	%	707,045		2	%
Beverage, Food & Tobacco	479,926		1	%	453,433		1	%
Energy: Oil & Gas	496,039		1	%	401,875		1	%
Media: Advertising, Printing & Publishing	494,179		1	%	365,548		1	%
Retail	218,497		1	%	7,982		1	%
Total	$	39,596,727	100	%	$	37,850,100	100	%

	June 30, 2020
Industry	Investments at Amortized Cost		Percentage of Portfolio		Investments at Fair Value		Percentage of Portfolio
Structured Finance	$	6,372,119	16	%	$	5,198,739	14	%
Healthcare & Pharmaceuticals	4,559,170		12	%	4,911,755		13	%
Services: Consumer	4,684,684		12	%	4,589,768		13	%
High Tech Industries	4,552,866		12	%	4,508,948		12	%
Telecommunications	3,747,852		10	%	3,580,442		10	%
Media: Broadcasting & Subscription	2,193,588		6	%	2,031,588		6	%
Services: Business	1,980,964		5	%	1,960,850		5	%
Wholesale	1,965,137		5	%	1,807,778		5	%
Construction & Building	1,730,600		4	%	1,644,070		5	%
Media: Diversified and Production	1,574,165		4	%	1,644,000		4	%
Transportation: Cargo	1,469,043		4	%	1,469,647		4	%
Financial	955,986		2	%	811,267		2	%
Consumer goods: Durable	736,490		2	%	705,287		2	%
Banking, Finance, Insurance & Real Estate	663,305		2	%	663,305		2	%
Beverage, Food & Tobacco	480,744		1	%	436,673		1	%
Energy: Oil & Gas	495,843		1	%	365,000		1	%
Media: Advertising, Printing & Publishing	493,860		1	%	332,812		1	%
Retail	218,497		1	%	1,774		0%
Total	$	38,874,913	100	%	$	36,663,703	100	%

We do not “control” any of our portfolio companies, ~~each~~ as defined in the ~~Company~~1940 Act. We are an affiliate of ~~two portfolio companies, Javlin Capital, LLC (held through TPJ Holdings, Inc. and a convertible note) and~~ Injured Workers Pharmacy, LLC (held through ACON IWP Investors I, L.L.C.). In general, under the ~~Company~~1940 Act, we would be presumed to “control” a portfolio

company if we owned 25% or more of its voting securities and would be an “affiliate” of a portfolio company if we owned 5% or more of its voting securities.

~~Portfolio Asset Quality~~

In addition to various risk management and monitoring tools, our Subadviser uses an investment rating system to characterize and monitor the expected level of returns on each investment in our debt portfolio. All of the investments included in our Subadviser’s rating systems refer to non-rated debt securities or rated debt securities that carry a rating below investment grade (rated lower than “Baa3” by Moody’s Investors Service or lower than “BBB-” by Standard & Poor’s Corporation also known as “junk bonds”). These ratings are on a scale of 1 to 8 as follows:

~~Highest quality obligors, minimal medium-term default risk; possibly moving towards investment grade status.~~

~~High quality obligors, but not likely to move towards investment grade in the medium term; performing at or in excess of expected levels; solid liquidity; conservative credit statistics.~~

Credits of with a history of performing with leverage (repeat issuers); moderate credit statistics currently performing at or in excess of expected levels; solid liquidity; no expectation of covenant defaults or third-party ratings downgrades.

~~Credits new to the leveraged loan universe; currently performing within a range of expected performance; moderate to aggressive credit statistics.~~

~~Credits new to the leveraged loan universe; currently performing within a range of expected performance; aggressive credit statistics or weak industry characteristics.~~

~~Credits placed in this category are experiencing potential liquidity problems, but the issues are not imminent (more than 12 months).~~

~~Credits placed in this category are experiencing nearer-term liquidity problems (within 12 months).~~

~~Table of Contents~~

~~Credits placed in this category have experienced either a technical or actual payment default which may require a write-down within our respective portfolios.~~

~~Categories 1 through 5 are performing in line with expectation, while categories 6-8 are closely watched for or have experienced liquidity problems and/or default.~~

The following table shows the ~~distribution~~composition of our ~~investments on the 1 to 8 scale at fair value~~investment portfolio by level of control as of September 30, ~~2017~~2020 and ~~December 31, 2016:~~

September 30, 2017 December 31, 2016
Investment Rating Fair Value Percentage Fair Value Percentage
1 $ — 0.0 % $ — 0.0 %
2 489,269 4.5 % — 0.0 %
3 3,722,619 33.9 % 2,690,027 30.8 %
4 2,382,414 21.7 % 2,689,677 30.8 %
5 4,010,757 36.5 % 3,010,103 34.5 %
6 370,627 3.4 % 339,164 3.9 %
7 — 0.0 % — 0.0 %
8 — 0.0 % — 0.0 %
$ 10,975,686 100.0 % $ 8,728,971 100.0 %

On June 30, ~~2017,~~2020:



	September 30, 2020								June 30, 2020
Level of Control	Cost		% of Portfolio		Fair Value⁽¹⁾		% of Portfolio		Cost		% of Portfolio		Fair Value⁽¹⁾		% of Portfolio
Affiliate	$	472,357	1	%	$	867,914	2	%	$	472,357	1	%	$	786,988	2	%
Non-Control/Non-Affiliate	39,124,370		99	%	36,982,186		98	%	38,402,556		99	%	35,876,715		98	%
Total Investments	$	39,596,727	100	%	$	37,850,100	100	%	$	38,874,913	100	%	$	36,663,703	100	%

(1) As of September 30, 2020 and June 30, 2020, the fair value of our investments was negatively impacted by the uncertainty surrounding the impact of the Wuhan Virus pandemic. For more information, see “Valuation of Portfolio Investments”.

Net Asset Value

During the three months ended September 30, 2020, our net asset value increased by $325,302, or $0.06 per share. The ~~Company made~~increase was primarily attributable to an increase in net realized and net change in unrealized gains of $475,633, or $0.20 per weighted average share. The increase was primarily offset by $0.14 of dilution per share related to distributions exceeding our net investment income of $31,475. The following table shows the ~~decision to fully mark down its remaining investment~~calculation of net asset value ~~in Javlin Financial~~per share as ~~an unrealized loss. The decision was due to performance issues within Javlin Financial’s core business~~of September 30, 2020 and ~~a breakdown in restructuring negotiations between the Company, its lenders, and Javlin Financial’s controlling shareholder. It is unknown at this time if there will be any value to the investment.~~

June 30, 2020.



	September 30, 2020		June 30, 2020
Net assets	$	19,883,702	$	19,558,400
Shares of common stock issued and outstanding	2,384,793		2,363,011
Net asset value per share	$	8.34	$	8.28

Results of Operations

Investment Income

For the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019 we generated ~~$227,488~~$848,045 and ~~$114,659,~~$748,644, respectively, in investment income in the form of interest and fees earned on our debt portfolio. Such revenues ~~represent $220,006 of~~were primarily cash income and ~~$7,482 in~~ non-cash portions related to the accretion of ~~discounts~~discounts.

For the three months ended September 30, 2020 and ~~paid-in-kind~~2019, PIK interest included in interest income totaled $7,507 and $29, respectively. Investment income for the three months ended September 30, ~~2017. We expect the dollar amount of interest that we earn to continue to increase as the size of our investment portfolio increases.~~

~~For the nine months ended September 30, 2017~~2020 and 2016, we generated $596,666 and $292,873, respectively, in investment income in the form of interest and fees earned on our debt portfolio. Such revenues represent $553,262 of cash income and $43,404 in non-cash portions related2019, increased due to the ~~accretion~~increase in assets and investments as a result of ~~discounts and paid-in-kind interest for~~ the ~~nine months ended September 30, 2017.~~

Merger.

Operating Expenses

Total operating expenses before ~~reimbursement from the sponsor~~expense limitation support totaled $999,956 and ~~management fee waiver totaled $283,890 and $212,838~~$755,329 for the three months ended September 30, ~~2017~~2020 and ~~2016, respectively,~~2019 respectively. These operating expenses consisted primarily of interest and ~~consisted~~credit facility expense, amortization of offering costs, base management fees, administrator costs, legal expense, audit and tax expense, and adviser ~~and administrator reimbursements, professional fees, insurance expense, directors’ fees and other general and administrative fees.~~ shared service expense.

The base management fees for the ~~quarters~~three months ended September 30, 2020 and 2019 respectively, were ~~$83,459~~$183,386 and ~~$60,625, respectively,~~$157,409.

The interest and ~~the incentive fees~~credit facility expense for the ~~quarters~~three months ended September 30, 2020 and 2019 respectively, were $0$146,648 and ~~$11,265, respectively.~~ $100,170.

The amortization of offering costs for the three months ended September 30, 2020 and 2019 respectively, were $147,743 and $120,606.

The legal expenses for the three months ended September 30, 2020 and 2019 respectively, were $72,417 and $25,358. The legal expenses for the three months ended September 30, 2020 were higher due to the costs incurred for additional SEC filings.

Pursuant to the ~~Expense Reimbursement Agreement~~expense limitation support payment (discussed below), the sponsor reimbursed the Company $0$(183,386) and ~~$201,573~~$(157,409) for the three months ended September 30, ~~2017~~2020 and ~~2016.~~

2019 respectively.

~~Table of Contents~~

~~Total operating expenses before reimbursement from the sponsor~~

Net Investment Income

Our net investment income totaled $31,475 and management fee waiver totaled $754,626 and $598,110 for the nine months ended September 30, 2017 and 2016, respectively, and consisted of base management fees, adviser and administrator reimbursements, professional fees, insurance expense, directors’ fees and other general and administrative fees. The base management fees for the periods were $246,154 and $156,957, respectively, and the incentive fees for the quarters were ($334) and $31,609, respectively. Pursuant to the Expense Reimbursement Agreement (discussed below), the sponsor reimbursed the Company $80,847 and $566,501 for the nine months ended September 30, 2017 and 2016.

~~Our other general and administrative expenses totaled $13,095 and $9,272~~$150,724 for the three months ended September 30, ~~2017~~2020 and ~~2016, respectively, and $23,168 and $15,189 for the nine months ended September 30, 2017 and 2016, respectively, and consisted of the following:~~

Three months ended September 30, 2017 Three months ended September 30, 2016 Nine months ended September 30, 2017 Nine months ended September 30, 2016
Licenses and permits $ — $ — $ 413 $ —
Outside Services 9,753 — 9,753 —
Printing fees 2,408 1,950 8,560 6,137
Travel expenses — 6,150 1,056 6,150
Other 934 1,172 3,386 2,902
Total $ 13,095 $ 9,272 $ 23,168 $ 15,189

~~Net Investment Income~~

Our net investment income totaled ($56,402) (($0.04) per share based on weighted average shares outstanding) for the three months ended September 30, 2017 and $103,394 ($0.12 per share based on weighted average shares outstanding) for the three months ended September 30, 2016.

Our net investment income totaled ($77,113) (($0.07) per share based on weighted average shares outstanding) for the nine months ended September 30, 2017 and $261,264 ($0.36 per share based on weighted average shares outstanding) for the nine months ended September 30, 2016.

2019 respectively.

Net Realized Gains/Losses from Investments

We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized.

For the three ~~and nine~~ months ended September 30, ~~2017,~~2020 and 2019 respectively, we ~~sold~~received proceeds from sales and repayments on unaffiliated investments of $691,385 and ~~received principal payments of $1,313,279 and $3,926,031,~~$1,622,438, from which we realized ~~a net gain~~gains (losses) of ~~$31,093~~$11,050 and $95,657, respectively. For the three and nine months ended September 30, 2016, we sold investments and received principal payments of $70,595 and $220,384, from which we realized a net loss of $0 and $1,167, respectively.

$(264,029).

Net Unrealized ~~Appreciation/Depreciation~~Gains/Losses on Investments

Net change in unrealized ~~appreciation~~gains (losses) on investments reflects the net change in the fair value of our investment portfolio. For the three ~~and nine~~ months ended September 30, ~~2017,~~2020 and 2019 respectively, net ~~changes~~change in unrealized ~~appreciation were ($131,397)~~gains (losses) totaled $464,583 and ~~($1,450,025)~~$(480,792), respectively. For the three ~~and nine~~ months ended September 30, ~~2016, net changes in unrealized appreciation were $56,324~~2020, the fair value of our investments was negatively impacted by the uncertainty surrounding the impact of the Wuhan Virus pandemic and ~~$158,046, respectively.~~

~~On June 30, 2017, The Company made the decision to fully mark down~~ its ~~remaining investment value in Javlin Financial as an unrealized loss. The decision was due to performance issues within Javlin Financial’s core business~~effect on market yields and ~~a breakdown in restructuring negotiations between the Company, its lenders, and Javlin Financial’s controlling shareholder. It is unknown at this time if there will be any value to the investment.~~

~~Changes in Net Assets from Operations~~

fundamental portfolio company performance. For ~~the three and nine months ended September 30, 2017, we recorded a net income~~more information, see “Valuation of ~~($161,230) and ($1,436,004), respectively versus net income of $159,718 and $418,144, respectively, for the three and nine months ended September 30, 2016.~~

Portfolio Investments”.

~~Table of Contents~~

Based on 1,266,225 and 1,143,880 weighted average common shares outstanding for the three and nine months ended September 30, 2017, basic and diluted, our per share net increase in net assets resulting from operations was ($0.13) and ($1.26).

Based on 827,457 and 731,866 weighted average common shares outstanding for the three and nine months ended September 30, 2016, basic and diluted, our per share net increase in net assets resulting from operations was $0.19 and $0.57.

Financial Condition, Liquidity and Capital Resources

We will generate cash primarily from the net proceeds of our offering, and from cash flows from fees (such as management fees), interest and dividends earned from our investments and principal repayments and proceeds from sales of our investments. Our primary use of funds iswill be investments in companies, and payments of our expenses and distributions to holders of our common stock.

We believe that our current cash on hand and our anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations. This "Financial Condition, Liquidity and Capital Resources" section should be read in conjunction with Wuhan Virus Pandemic under the "Recent Developments" section below.

The offering of our common stock represents a continuous offering of our shares. The initial offering of our common stock commenced on September 4, 2012 and terminated on March 1, 2016. On March 17, 2016, we commenced the follow-on offering of our common stock, which follow-on offering is currently ongoing. We intend to file post-effective amendments to our registration statement to allow us to continue our offering for three years. ~~Our most recent post-effective amendment was~~On September 26, 2019, we filed with the SEC ~~on May 2, 2017 and~~an amendment to our registration statement, which was declared effective ~~on May 3, 2017.~~ September 26, 2019, in order to continue our continuous public offering of our shares.

The Dealer Manager is not required to sell any specific number or dollar amount of shares but will use its best efforts to sell the shares offered. The minimum investment in shares of our common stock is $5,000.

~~The current~~

On May 14, 2020, the Company decreased its offering price from $11.38 per share to $8.78 per share. The decrease in the offering price was effective for all closings occurring on or after May 15, 2020. On August 12, 2020, our Board of Directors determined to change the public offering price per share of our Class A shares ~~is $13.46~~of common stock from $8.78 per ~~share; however,~~share to $9.03 per share. The change in the public offering price was effective as of August 12, 2020 and first applied to subscriptions in good order received on or after August 12, 2020. In addition, on August 26, 2020, the Company increased its offering price from $9.03 per share to $9.33 per share. The increase in the offering price was effective for all closings occurring on or after August 26, 2020. On November 6, 2020, our Board of Directors determined to change the public offering price per share of our Class A shares of common stock from $9.33 per share to $9.40 per share. The change in the public offering price became effective as of November 12, 2020 and first applied to subscriptions in good order received on or after November 9, 2020. To the extent 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 our net asset value per share. In connection with each closing, our 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 ~~any class of~~ our common stock at a price per share which, after deducting upfront selling commissions, if any, is below the then-current net asset value per share of the applicable class. Promptly following any such adjustment to the offering price per share, we will file a prospectus supplement with the SEC disclosing the adjusted offering price, and we appropriately publish the updated information. ~~The Dealer Manager for this offering is an affiliate of our Adviser.~~

During the nine months ended September 30, 2017, we sold 362,028.61 shares of our common stock for gross proceeds of $5,320,227 at an average price per share of $14.70. The increase in capital in excess of par during the nine months ended September 30, 2017 include reinvested stockholder distributions of $214,336 for which we issued 16,105.02 shares of common stock. The sales commissions and dealer manager fees related to the sale of our common stock were $502,640 for the nine months ended September 30, 2017. These sales commissions and fees include $97,435 retained by the dealer manager, Triton Pacific Securities, LLC, which is an affiliate of ours.~~Our offering expenses are capitalized as deferred offering expenses and then subsequently expensed over a 12-month period.~~

We may borrow funds to make investments at any time, including before we have fully invested the proceeds of our offering, to the extent we determine that additional capital would allow us to take advantage of investment opportunities, or if our board of directors determines that leveraging our portfolio would be in our best interests and the best interests of our stockholders. We have not yet decided, however, whether, and to what extent, we will finance portfolio investments using debt. We do not currently anticipate issuing any preferred stock.

The North American Securities Administrators Association, in its Omnibus Guidelines Statement of Policy adopted on March 29, 1992 and as amended on May 7, 2007 and from time to time, requires that our sponsor and its affiliates have an aggregate financial net worth, exclusive of home, automobile and home furnishings, of 5% of the first $20,000 of both the gross amount of securities currently being offered and the gross amount of any originally issued direct participation program sold by our sponsor and its affiliates within the last 12 months, plus 1% of all amounts in excess of the first $20,000. Based on these requirements, our sponsor and its affiliates have an aggregate net worth in excess of those amounts required by the Omnibus Guidelines Statement of Policy.

Contractual Obligations

We have entered into certain contracts under which we have material future commitments. On ~~July 27, 2012,~~March 31, 2019, we entered into the ~~investment advisory agreement~~Investment Advisory Agreement with ~~Triton Pacific Adviser,~~Prospect Flexible Income Management, LLC in accordance with the 1940 Act. The ~~investment advisory agreement~~Investment Advisory Agreement became effective ~~on June 25, 2014,~~upon consummation of the ~~date that we met the minimum offering requirement. Triton Pacific Adviser~~Merger. Prospect Flexible Income Management, LLC serves as our investment ~~advisor~~adviser in accordance with the terms of ~~our investment advisory agreement.~~the Investment Advisory Agreement. Payments under ~~our investment advisory agreement~~the Investment Advisory Agreement in each reporting period will consist of (i) a management fee equal to a percentage of the value of our gross assets and (ii) aincome and capital gains incentive ~~fee~~fees based on our performance.

~~Table of Contents~~

On ~~July 27, 2012,~~March 31, 2019, we entered into the ~~administration agreement~~Administration Agreement with ~~TFA Associates, LLC~~Prospect Administration, which was amended and restated effective as of June 17, 2019, pursuant to which ~~TFA Associates~~Prospect Administration furnishes us with administrative services necessary to conduct our day-to-day operations. ~~TFA Associates is reimbursed~~The Administration Agreement with Prospect Administration initially became effective upon consummation of the Merger. We reimburse Prospect Administration for ~~administrative expenses it incurs on our behalf~~its allocable portion of overhead incurred by Prospect Administration in performing its ~~obligations. Such~~obligations under the Administration Agreement, including rent and its allocable portion of the costs are reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We do not reimburse TFA Associates for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of TFA Associates. At the time of our ~~offering, our Administrator has contracted with Bank of New York Mellon~~Chief Financial Officer and ~~affiliated entities to provide additional administrative services, while we~~Chief Compliance Officer and her staff. We have ~~directly~~ engaged Bank of New York Mellon and affiliated entities to act as our custodian. We have also contracted with Phoenix American Financial Services to act as our transfer agent, plan administrator, distribution paying agent and registrar.

If any of our contractual obligations discussed above are terminated, our costs may increase under any new agreements that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the services we expect to receive under the ~~investment advisory agreement~~Investment Advisory Agreement and ~~administration agreement.~~the Administration Agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.

Off-Balance Sheet Arrangements

Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not have any off-balance sheet financings or liabilities.

Credit Facility

On May 16, 2019, we established a $50 million senior secured revolving credit facility (the “Credit Facility”) with Royal Bank of Canada, a Canadian chartered bank (“RBC”), acting as administrative agent. In connection with the credit facility, our wholly owned financing subsidiary, Prospect Flexible Funding, LLC (the "SPV"), as borrower, and each of the other parties thereto, entered into a Revolving Loan Agreement, dated as of May 16, 2019 (the “Loan Agreement”). The SPV is a wholly-owned subsidiary of the Company that was formed to facilitate the transactions under the Credit Facility. Under the terms of the Credit Facility, the SPV holds certain of the securities that would otherwise be owned by the Company to be used as the borrowing base and collateral under the Credit Facility. Income paid on these investments is distributed to the Company pursuant to a waterfall after taxes, fees, expenses, and debt service. The lenders under the Credit Facility have a security interest in the investments held by the SPV. Although these investments are owned by the SPV, because the SPV is a wholly-owned subsidiary of the Company, the Company is subject to all of the benefits and risks associated with the Credit Facility and the investments held by the SPV.

The Credit Facility matures on May 21, 2029 and generally bears an interest at a rate of three-month LIBOR plus 1.55%. On May 11, 2020, the Company agreed to the increased interest rate of three-month LIBOR plus 2.20% on the Credit Facility for the period between May 16, 2020 to November 15, 2020. The Credit Facility is secured by substantially all of the SPV’s properties and assets. Under the Loan Agreement, the SPV has made certain customary representations and warranties and is required to comply with various covenants, including reporting requirements and other customary requirements for similar credit facilities. The Loan Agreement includes usual and customary events of default for credit facilities of this nature.

Recent Developments

Management has evaluated all known subsequent events through the date the accompanying consolidated financial statements were available to be issued on November 12, 2020 and notes the following:

Sales of Common Stock

For the period beginning October 1, 2020 and ending November 12, 2020, the Company sold 2,769 shares of its common stock for gross proceeds of $25,000 and issued 16,355 shares pursuant to its distribution reinvestment plan in the amount of $138,858.

Investment Activity

On October 1, 2020, the Company funded the outstanding $39,773 of the delayed draw term loan commitment for our investment in Amerilife Holdings, LLC portfolio company.

Offering Price

Repurchase Offer

On September 17, 2020, under our share repurchase program, we made an offer to purchase (the "Tender Offer") up to the number of shares of our issued and outstanding Class A common stock we can repurchase with the proceeds we receive from the issuance of shares under our distribution reinvestment plan prior to the expiration of the Tender Offer. The total proceeds under the distribution reinvestment plan prior to the Tender Offer was $229,113. The Tender Offer is for cash at a price equal to the net offering price per share determined as of October 20, 2020 (“Purchase Price”). The offer expired at 4:00 P.M., Eastern Time, on October 16, 2020 and a total of 181,137 shares were validly tendered and not withdrawn pursuant to the offer. In accordance with the terms of the offer, the Company purchased 26,986 shares validly tendered and not withdrawn at a price equal to $8.49 per share for an aggregate purchase price of approximately $229,113.

Revolving Credit Facility

Effective November 10, 2020, the end date of the ramp period of the Credit Facility was extended from November 15, 2020 to May 14, 2021. As a result, the interest rate on borrowings under the Credit Facility of the three-month LIBOR plus 2.20% was extended from the period between May 16, 2020 to November 15, 2020 to the period between May 16, 2020 to May 14, 2021.

Distributions



Record Date	Payment Date	FLEX Class A Common Shares, per share
December 4, 11, 18 and 25, 2020	January 4, 2021	$	0.05048
January 4, 8, 15, 22 and 29, 2021	February 5, 2021	$	0.06310
February 5, 12, 19 and 26, 2021	March 5, 2021	$	0.05048

Distributions

General

We elected to be treated, beginning with our fiscal year ending December 31, 2012, and intend to qualify annually thereafter, 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 stockholders. In order to avoid certain excise taxes imposed on RICs, we must 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 recognized capital gains in excess of recognized capital losses

for the one-year period generally ending 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~~or capital gains ~~for preceding years that were~~recognized but not distributed ~~during such~~in preceding years and on which we paid no federal income tax.

While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.

Our board of directors has authorized, and has declared, cash distributions on our common stock on a monthly basis since the second quarter of ~~2015.~~2015 (in our capacity as TPIC). The amount of each such ~~distributions~~distribution is subject to our board of directors’ discretion and applicable legal restrictions related to the payment of distributions. We calculate each stockholder’s specific distribution amount for the month using record and declaration dates, and distributions will begin to accrue on the date we accept subscriptions for shares of our common stock. From time to time, we may also pay interim distributions at the discretion of our ~~board.~~board of directors. Each year a statement on Internal Revenue Service Form 1099-DIV (or any successor form) identifying the source of the distribution (i.e.,(i) paid from investment company taxable income, which is generally our net ordinary income plus our realized net short-term capital gains in excess of realized net long-term capital gains, (ii) paid from net capital gain on the sale of securities, which is our realized net long-term capital gains in excess of realized net-short term capital losses, and/or (iii) a return of paid-in capital surplus, which is generally a nontaxable distribution) will be mailed to our stockholders. Our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from our offering. As a result, a portion of the distributions we make may represent a return of capital for tax purposes.

We have adopted an “opt in” distribution reinvestment plan for our common stockholders. As a result, when we make a distribution, stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of our common stock. Any distributions reinvested under the plan will nevertheless remain taxable to U.S. stockholders.

Related Party Transactions

~~Table~~

License Agreement

We entered into a license agreement with an affiliate of ~~Contents~~

~~The following table reflects~~our Adviser, pursuant to which the ~~cash distributions per share that~~affiliate granted us a non-exclusive, royalty free license to use the “Prospect” name. Under this license agreement, we have ~~declared and paid on~~the right to use such name for so long as our ~~common stock through September 30, 2017:~~

Distribution
For the Nine Months Ended Per Share Amount
Fiscal 2017
January 27, 2017 $ 0.04000 39,407
February 24, 2017 $ 0.04000 41,323
March 23, 2017 $ 0.04000 42,513
April 27, 2017 $ 0.04000 44,526
May 25, 2017 $ 0.04000 46,364
June 23, 2017 $ 0.04000 47,861
July 21, 2017 $ 0.04000 48,678
August 29, 2017 $ 0.03417 44,767
September 28, 2017 $ 0.03417 45,500

Fiscal 2016
January 22, 2016 $ 0.04500 $ 25,244
February 16, 2016 $ 0.04500 $ 26,477
March 23, 2016 $ 0.04500 $ 30,271
April 21, 2016 $ 0.04500 $ 32,832
May 19, 2016 $ 0.04500 $ 34,950
June 23, 2016 $ 0.04500 $ 36,206
July 21, 2016 $ 0.04000 $ 32,318
August 25, 2016 $ 0.04000 $ 33,293
September 22, 2016 $ 0.04000 $ 33,877
October 20, 2016 $ 0.04000 $ 35,164
November 18, 2016 $ 0.04000 $ 37,327
December 20, 2016 $ 0.04000 $ 38,091

~~Our distributions previously were paid quarterly in arrears. On January 15, 2015,~~Adviser or another affiliate of Prospect Capital Management is our ~~Board declared a quarterly cash distribution for the fourth quarter of 2014 of $0.07545 per share payable on January 30, 2015,~~investment adviser. Other than with respect to shareholders of record as of January 20, 2015. In addition, on April 2, 2015, our Board declared a cash distribution for the first quarter of 2015 of $0.116 per share payable on April 13, 2015, to shareholders of record as of April 6, 2015. Commencing in April 2015, and subject to our board of directors’ discretion and applicablethis limited license, we have no legal restrictions, our board of directors began to authorize and declare a monthly distribution amount per share of our common stock, payable in advance. We then calculate each stockholder’s specific distribution amount for the month using record and declaration dates, and distributions will begin to accrue on the date we accept subscriptions for shares of our common stock. No distributions were declared for the years before 2015.

The Company may fund its cash distributions to stockholders from any sources of funds legally available to it, 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, dividends or other distributions paidright to the Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from the Adviser. The Company has not established limits on the amount of funds it may use from available sources to make distributions.

“Prospect” name or logo.

Investment Advisory Agreement

~~Table of Contents~~

~~The following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common stock during the nine months ended September 30, 2017 and September 30, 2016:~~

Nine months ended September 30,
2017 2016
Distribution Distribution
Source of Distribution Amount Percentage Amount Percentage
Offering proceeds $ — — $ — —
Borrowings — — — —
Net investment income⁽¹⁾ — — — —
Short-term capital gains proceeds from the sale of assets 47,998 12 % — —
Long-term capital gains proceeds from the sale of assets — 0 % — —
Distributions from common equity (return of capital) 352,941 88 % — —
Expense reimbursement from sponsor — 0 % 285,469 100 %
Total $ 400,939 100 % $ 285,469 100 %

~~(1)~~

~~Related Party Transactions~~

We have entered into the Investment Advisory Agreement with our Adviser. We will pay our Adviser a fee for its services under the Investment Advisory Agreement consisting of two components - a base management fee and an ~~investment~~incentive fee. The cost of both the base management fee payable to the Adviser and ~~advisory agreement with Triton Pacific Adviser in which~~any incentive fees it earns will ultimately be borne by our stockholders. See “-Investment Advisory Fees.”

Certain members of our senior management ~~holds~~hold an equity ~~interest.~~interest in our Adviser. Members of our senior management also serve as principals of other investment managers affiliated with ~~Triton Pacific~~our Adviser that do and may in the future manage investment funds, accounts or other investment vehicles with investment objectives similar to ours.

~~We have entered into~~

Administration Agreement

Pursuant to the agreement and plan of merger, as amended and restated, between TPIC and PWAY, Prospect Administration LLC (the "Administrator"), an ~~administration~~affiliate of the Adviser, became the administrator for the Company pursuant to an administrative agreement, ~~with TFA Associates~~as amended and restated as of June 17, 2019 (the "Administration Agreement"). The Administrator performs, oversees and arranges for the performance of administrative services necessary for the operation of the Company. These services include, but are not limited to, accounting, finance and legal services. For providing these services, facilities and personnel, the Company reimburses the Administrator for the Company’s actual and allocable portion of expenses and overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including rent and the Company’s allocable portion of the costs of its Chief Financial Officer and Chief Compliance Officer and her staff. For the three months ended September 30, 2020 and 2019, administrative costs incurred by the Company to the Administrator were $224,993 and $163,793, respectively. As of September 30, 2020 and June 30, 2020, $225,651 and $122,384, respectively, was payable to the Administrator by the Company.

Allocation of Expenses

The cost of valuation services for CLOs is initially borne by PRIS, which ~~our senior~~then allocates to the Company its proportional share of such expense. During the three months ended September 30, 2020 and 2019, PRIS incurred $13,138 and $20,793, respectively, in expenses related to valuation services that are attributable to the Company. The Company reimburses PRIS for these expenses and includes them as part of valuation services on the ConsolidatedStatements of Operations. As of September 30, 2020 and June 30, 2020, $26,654 and $13,516, respectively, of expense is due to PRIS, which is presented as part of due to affiliates on the ConsolidatedStatements of Assets and Liabilities.

The cost of filing software is initially borne by PSEC, which then allocates to the Company its proportional share of such expense. During the three months ended September 30, 2020 and 2019, PSEC incurred $0 and $2,351, respectively in expenses related to the filing services that are attributable to the Company. The Company reimburses PSEC for these expenses and includes them as part of general and administrative expenses on the Consolidated Statements of Operations. As of September 30, 2020 and June 30, 2020, $0 was due to PSEC.

The cost of portfolio management ~~holds equity interest~~software is initially borne by the Company, which then allocates to PSEC its proportional share of such expense. During the three months ended September 30, 2020 and ~~act~~2019, the Company incurred $0 in expenses related to the portfolio management software that is attributable to PSEC. PSEC reimburses the Company for these expenses and included them as ~~principals.~~

Wepart of general and administrative expenses on the ConsolidatedStatements of Operations. As of September 30, 2020 and June 30, 2020, $0 of expense is due from PSEC.

Officers and Directors

Certain officers and directors of the Company are also officers and directors of the Adviser and its affiliates. There were no fees paid to the independent directors of the Company as the Company did not exceed the minimum net asset value required (i.e., greater than $100 million) to receive a fee for the three months ended September 30, 2020. The officers do not receive any direct compensation from the Company.

Dealer Manager Agreement

The Company and its Adviser have entered into a dealer manager agreement with Triton Pacific Securities, LLC ~~and~~pursuant to which the Company will pay ~~them~~the Dealer Manager a fee of up to ~~10%~~9.0% of gross proceeds raised in the Company's offering, some of which will be re-allowed to other participating broker-dealers. ~~Triton Pacific Securities, LLC~~In addition to the upfront selling commissions and dealer manager fees, the Adviser may pay the Dealer Manager a fee (the "Additional Selling Commissions") equal to no more than 1.0% of the net asset value per share per year. The Dealer Manager will reallow all or a portion of the Additional Selling Commissions to participating broker-dealers. The Dealer Manager is an affiliated entity of ~~Triton Pacific Adviser.~~

~~We have entered into a license agreement with Triton Pacific Group, Inc. under which Triton Pacific Group, Inc. has granted us a non-exclusive, royalty-free license to use~~ the name “Triton Pacific” for specified purposes in our business. Under this agreement, we have the right to use the “Triton Pacific” name, subject to certain conditions, for so long as Triton PacificFormer Adviser orand is partially owned by one of ~~its affiliates remains~~ our ~~investment advisor. Other than with respect to this limited license, we have no legal right to the “Triton Pacific” name.~~

~~We have~~directors, Craig Faggen.

Expense Limitation Agreement

The Company has entered into an expense ~~support and conditional reimbursement~~limitation agreement with ~~Triton Pacific~~the Adviser pursuant to which the Adviser, ~~will pay up to 100% of the Company’s organization, offering and operating expenses, subject to repayment by us to the Adviser,~~ in ~~order for the Company to achieve~~its sole discretion,

may waive a reasonable level of expenses relative to its investment income, as determined by the Company and the Adviser. our Adviser has agreed to make advances to us to cover certain of our operating expenses. (See “Expense Reimbursement Agreement”, below.)

~~Management Fee~~

~~Pursuant to the investment adviser agreement, we pay our Adviser a fee for investment advisory and management services consisting of a base management fee and an incentive fee.~~

The base management fee is calculated at a quarterly rate of 0.5% of our average gross assets (including amounts borrowed for investment purposes) and payable quarterly in arrears. For the first quarter of our operations, the base management fee was calculated based on the initial value of our gross assets. Subsequently, the base management fee for any calendar quarter is calculated based on the average value of our gross assets at the end of that and the immediately preceding quarters, appropriately adjusted for any share issuancesportion or repurchases during that quarter. The base management fee may or may not be taken in whole or in part at the discretion of our Adviser. All or any part of the base management fee not taken as to any quarter shall be accrued without interest and may be taken in such other quarter as our Adviser shall determine. The base management fee for any partial quarter will be appropriately pro-rated.

~~Table of Contents~~

Though, in accordance with the Advisers Act, the Adviser could have received an incentive fee on both current income earned and income from capital gains, the Adviser has agreed to waive any incentive fees from current income. As such, the Adviser will be paid an incentive fee only upon the realization of a capital gain from the sale of an investment. The incentive fee will be calculated and payable quarterly in arrears or as of the date of our liquidation or the terminationall of the investment ~~adviser agreement, and will equal 20% of our realized capital gains on~~advisory fees that it is entitled to receive under the Investment Advisory Agreement

in order to limit the Company's operating expenses to an annual rate, expressed as a cumulative basis from inception through the end of each quarter, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.

~~For purposes~~percentage of the foregoing: (1) the calculation of the incentive fee shall include any capital gains that result from cash distributions that are treated as a return of capital, (2) any such return of capital will be treated as a decrease in our cost basis for the relevant investment and (3) all fiscal year-end valuations will be determined by us in accordance with GAAP, applicable provisions of the Company Act and our pricing procedures. In determining the incentive fee payable to our Adviser, we will calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each of the investments in our portfolio. For this purpose, aggregate realized capital gains, if any, will equal the sum of the positive differences between the Company's average quarterly

net sales prices of our investments, when sold, and the cost of such investments since inception. Aggregate realized capital losses will equal the sum of the amounts by which the net sales prices of our investments, when sold, is less than the original cost of such investments since inception. Aggregate unrealized capital depreciation will equal the sum of the difference, if negative, between the valuation of each investment as of the applicable date and the original cost of such investment. At the end of the applicable period, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee will equal the aggregate realized capital gains less aggregate realized capital losses and less aggregate unrealized capital depreciation with respect to our portfolio investments. If this number is positive at the end of such period, then the incentive fee for such period will beassets, equal to ~~20% of such amount, less the aggregate amount of any incentive fees paid in all prior periods.~~

While the investment advisory agreement neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an American Institute of Certified Public Accountants, or AICPA, Technical Practice Aid for investment companies, we include unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to our Advisor as if our entire portfolio was liquidated at its fair value as of the balance sheet date even though our Adviser is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

The organizational and offering expense and other expense reimbursements may include a portion of costs incurred by our Adviser or its members or affiliates on our behalf for legal, accounting, printing and other offering expenses, including for marketing, salaries and direct expenses of its employees, employees of its affiliates and others while engaged in registering and marketing the shares of our common stock, which shall include development of marketing and marketing presentations and training and educational meetings and generally coordinating the marketing process for us and may also include amounts reimbursed by us to our Dealer Manager for actual bona fide due diligence expenses incurred by our Dealer Manager or participating broker-dealers in an aggregate amount that is reasonable in relation to the gross proceeds raised in our offering and which are supported by detailed, itemized invoices. None of the reimbursements referred to above will exceed actual expenses incurred by our Adviser, its members or affiliates. Our Adviser will reimburse to us, without recourse or reimbursement by us, any organizational and offering expenses to the extent those expenses, when aggregated with sales load, exceed 15.0%8.00%.

See “Expense Limitation Agreement” below.

~~Table of Contents~~

Expense Limitation Agreement

Expense Reimbursement Agreement

with our Former Adviser

On March 27, 2014, we and our Former Adviser ~~agreed to~~entered into an ~~Expense Support and Conditional Reimbursement Agreement, or the~~ Expense Reimbursement Agreement. The Expense Reimbursement Agreement was amended and restated effective ~~November 17, 2014.~~April 5, 2018. Under the Expense Reimbursement Agreement, as amended, our Former Adviser, in consultation with the Company, ~~will~~could pay up to 100% of both our organizational and offering expenses and our operating expenses, all as determined by us and our Former Adviser. As used in the Expense Reimbursement Agreement, operating expenses refer to third party operating costs and expenses incurred by us, as determined under generally accepted accounting principles for investment management companies. Organizational and offering expenses include expenses incurred in connection with the organization of our company and expenses incurred in connection with our offering, which are recorded as a component of equity. The Expense Reimbursement Agreement ~~states~~stated that until the net proceeds to us from our offering are at least $25 million, our Former Adviser ~~will~~could pay up to 100% of both our organizational and offering expenses and our operating expenses. After we received at least $25 million in net proceeds from our offering, our Former Adviser ~~may,~~could, with our consent, continue to make expense support payments to us in such amounts as ~~are~~was acceptable to us and our Former Adviser. ~~Any expense support payments shall be paid by~~The Expense Reimbursement Agreement terminated on December 31, 2018. Our Former Adviser had agreed to reimburse a total of $5,292,192 as of December 31, 2018. However, as part of the Merger, the Former Adviser agreed to ~~the Company in~~waive any ~~combination of cash, and/or offsets against~~ amounts ~~otherwise due from the Company~~owed to ~~the Adviser.~~

~~Under~~it under the Expense Reimbursement Agreement.

Expense Limitation Agreement ~~as amended, once~~with the Adviser

Concurrently with the closing of the Merger, we ~~have received at least $25 million in net proceeds from our offering~~,~~we are required to reimburse~~entered into an Expense Limitation Agreement with our Adviser ~~for any expense support payments we received from themoccurring within three years~~(the “ELA”). Pursuant to the ELA, our Adviser, in its sole discretion, may waive a portion or all of the ~~date on which we incurred such expenses.However, with respect~~investment advisory fees that it is entitled to ~~any expense support payments attributable to our operating expenses,~~ ~~(i) we will only reimburse our Adviser for expense support payments made by our Adviser~~receive pursuant to the ~~extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause “other operating expenses”~~Investment Advisory Agreement in order to limit our Operating Expenses (as defined below) ~~(on~~to an ~~annualized basis and net of any expense reimbursement payments received by us during such fiscal year) to exceed the~~annual rate, expressed as a percentage of our average quarterly net assets, ~~attributable~~equal to ~~shares~~8.00% (the “Annual Limit”). For purposes of the ELA, the term “Operating Expenses” with respect to the Company, is defined to include all expenses necessary or appropriate for the operation of the Company, including but not limited to our ~~common stock represented by “other operating expenses” during~~Adviser’s base management fee, any and all costs and expenses that qualify as line item “organization and offering” expenses in the ~~fiscal year~~consolidated financial statements of the Company as the same are filed with the SEC and other expenses described in ~~which such expense support payment from~~the Investment Advisory Agreement, but does not include any portfolio transaction or other investment-related costs (including brokerage commissions, dealer and underwriter spreads, prime broker fees and expenses and dividend expenses related to short sales), interest expenses and other financing costs, extraordinary expenses and acquired fund fees and expenses. Upfront shareholder transaction expenses (such as sales commissions, dealer manager fees, and similar expenses) are not Operating Expenses. On April 30, 2020, the Company's board of directors approved extending the Expense Limitation Agreement for an additional 12-month term ending on April 30, 2021

Any amount waived pursuant to the ELA is subject to repayment to our Adviser was made (provided, however, that this clause (i) shall not apply to any reimbursement payment which relates to an expense support payment from our Adviser made during the same fiscal year); and (ii) we will not reimburse our Adviser for expense support payments made by our Adviser if the annualized rate of regular cash distributions declared by us at the time of such reimbursement payment is less than the annualized rate of regular cash distributions declared by us at the time our Adviser made the expense support payment to which such reimbursement relates. “Other operating expenses” means our total operating expenses excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses.

~~In addition, with respectto any expense support payment attributable to our organizational and offering expenses,~~we will only reimburse our Adviser for expense support payments made by our Adviser to the extent that the payment of such reimbursement (together with any other reimbursement for organizational and offering expenses paid during such fiscal year) is limited to 15% of cumulative gross sales proceeds including the sales load (or dealer manager fee) paid by us.

~~Under the Expense Reimbursement Agreement, any unreimbursed expense support payments may be reimbursed~~(an “ELA Reimbursement”) by us within ~~a period not to exceed~~the three years ~~from~~following the end of the quarter in which ~~we incurred~~ the ~~expense.~~

Wewaiver was made by our Adviser. If the ELA is terminated or expires pursuant to its terms, our Adviser maintains its right to repayment for any waiver it has made under the ELA, subject to the Repayment Limitations (discussed below).

Any ELA Reimbursement can be made solely in the event that we have sufficient excess cash on hand at the time of any proposed ELA Reimbursement and shall be limited to the lesser of (i) the excess of the Annual Limit applicable to such quarter over the Company’s actual Operating Expenses for such quarter and (ii) the amount of ELA Reimbursement which, when added to the Company’s expenses for such quarter, permits the Company to pay the then-current aggregate quarterly distribution to its shareholders, at a minimum annualized rate of at least 6.00% (based on the gross offering prices of Company shares) (the “Distribution”) from the sum of (x) the Company’s net investment income (loss) for such quarter plus (y) the Company’s net realized gains (losses) for such quarter (collectively, the “Repayment Limitations”). For the purposes of the calculations pursuant to (i) and (ii) of the preceding sentence, any ELA Reimbursement will be treated as an expense of the Company for such quarter, without regard to the GAAP treatment of such expense. In the event that the Company is unable to make a full payment of any ELA Reimbursements due for any applicable quarter because the Company does not have sufficient excess cash on hand, any such unpaid amount shall become a payable of the Company for accounting purposes and shall be paid when the Company has sufficient cash on hand (subject to the Repayment Limitations); provided, that in the case of any ELA Reimbursements, such payment shall be made no later than the date that is three years following the end of the quarter in which the applicable waiver was made by our Adviser.

Investment Advisory Fees

Pursuant to the Investment Advisory Agreement, we pay the Adviser a fee for investment advisory and management services consisting of a base management fee and an incentive fee. The cost of both the base management fee payable to the Adviser and any incentive fees it earns will ultimately be borne by our stockholders.

Base Management Fee. The base management fee is calculated at an annual rate of 1.75% (0.4375% quarterly) of our average total assets, which includes any borrowings for investment purposes. For the first quarter of our operations following the Merger, the base management fee was calculated based on the average value of our total assets as of the date of the Investment Advisory Agreement and at the end of the calendar quarter in which the date of the Investment Advisory Agreement fell, and was appropriately

adjusted for any share issuances or repurchases during the then current calendar quarter. Subsequently, the base management fee is payable quarterly in arrears, and is calculated based on the average value of our total assets at the end of the two most recently completed calendar quarters, and is appropriately adjusted for any share issuances or repurchases during the then current calendar quarter. Base management fees for any partial month or quarter is appropriately pro-rated. At the Adviser’s option, the base management fee for any period may ~~terminate~~be deferred, without interest thereon, and paid to the ~~expense reimbursement agreement~~Adviser at any time subsequent to any such deferral as the Adviser determines.

Incentive Fee. The incentive fee consists of two parts: (1) the subordinated incentive fee on income and (2) the capital gains incentive fee.

Subordinated Incentive Fee on Income. The first part of the incentive fee, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears based upon ~~thirty days’ written notice.~~our “pre-incentive fee net investment income” for the immediately preceding calendar quarter. For purposes of this fee, “pre-incentive fee net investment income” means interest income, dividend income and distribution cash flows from equity investments and any other income (including any other fees, such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, expenses reimbursed under the Investment Advisory Agreement and the Administration Agreement, any interest expense and dividends paid on any issued and outstanding preferred shares, but excluding the organization and offering expenses and incentive fees on income and capital gains). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. The ~~expense reimbursement agreement~~subordinated incentive fee on income is subject to a quarterly fixed preferred return to investors, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, of 1.5% (6.0% annualized), subject to a “catch up” feature. Operating expenses are included in the calculation of the subordinated incentive fee on income.

We will ~~automatically terminate~~pay our Adviser a subordinated incentive fee on income for each calendar quarter as follows:

No incentive fee will be payable to our Adviser in any calendar quarter in which our pre-incentive fee net investment income does not exceed the preferred return rate of 1.5%.

100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the preferred return but is less than or equal to 1.875% in any calendar quarter (7.5% annualized). We refer to this portion of our pre-incentive fee net investment income (which exceeds the preferred return but is less than or equal to 1.875%) as the “catch-up.” The effect of the “catch-up” provision is that, if our pre-incentive fee net investment income reaches 1.875% in any calendar quarter, our Adviser will receive 20.0% of our pre-incentive fee net investment income as if a preferred return did not apply.

20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 1.875% in any calendar quarter (7.5% annualized) will be payable to our Adviser. This reflects that once the preferred return is reached and the catch-up is achieved, 20.0% of all pre-incentive fee net investment income thereafter will be allocated to our Adviser.

Capital Gains Incentive Fee. The second part of the incentive fee, which is referred to as the capital gains incentive fee, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20.00% of our realized capital gains for the calendar year, if any, computed net of all realized capital losses and unrealized capital depreciation at the end of such year. In determining the capital gains incentive fee payable to the Adviser, we calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each investment that has been in our portfolio. For the purpose of this calculation, an “investment” is defined as the total of all rights and claims which may be asserted against a portfolio company arising from our participation in the debt, equity, and other financial instruments issued by that company. Aggregate realized capital gains, if any, equal the sum of the differences between the aggregate net sales price of each investment and the aggregate amortized cost basis of such investment when sold or ~~upon~~otherwise disposed. Aggregate realized capital losses equal the sum of the amounts by which the aggregate net sales price of each investment is less than the aggregate amortized cost basis of such investment when sold or otherwise disposed. Aggregate unrealized capital depreciation equals the sum of the differences, if negative, between the aggregate valuation of each investment and the aggregate amortized cost basis of such investment as of the applicable calendar year-end. At the end of the applicable calendar year, the amount of capital gains that serves as the basis for our ~~liquidation~~calculation of the capital gains incentive fee involves netting aggregate realized capital gains against aggregate realized capital losses on a since-inception basis and then reducing this amount by the aggregate unrealized capital depreciation. If this number is positive, then the capital gains incentive fee payable is equal to 20.00% of such amount, less the aggregate amount of any capital gains incentive fees paid since inception. Operating expenses are not taken into account when determining capital gains incentive fees.

Asset Coverage

In accordance with the 1940 Act, the Company is currently only allowed to borrow amounts such that its “asset coverage,” as defined in the 1940 Act, is at least 150% after such borrowing. “Asset coverage” generally refers to a company’s total assets, less all liabilities and indebtedness not represented by “senior securities,” as defined in the 1940 Act, divided by total senior securities representing indebtedness and, if applicable, preferred stock. “Senior securities” for this purpose includes borrowings from banks or ~~dissolution.~~

~~The Expense Reimbursement Agreement~~other lenders, debt securities and preferred stock.

On March 23, 2018, an amendment to Section 61(a) of the 1940 Act was signed into law to permit BDCs to reduce the minimum “asset coverage” ratio from 200% to 150%, so long as certain approval and disclosure requirements are satisfied. In addition, for BDCs like the Company whose securities are not listed on a national securities exchange, the Company is byalso required to offer to repurchase its ~~terms, effective retroactively~~outstanding shares at the rate of 25% per quarter over four calendar quarters. Under the existing 200% minimum asset coverage ratio, the Company is permitted to ~~our inception date~~borrow up to one dollar for investment purposes for every one dollar of ~~April 29, 2011.~~investor equity, and under the 150% minimum asset coverage ratio, the Company will be permitted to borrow up to two dollars for investment purposes for every one dollar of investor equity. In other words, Section 61(a) of the 1940 Act, as amended, permits BDCs to potentially increase their debt-to-equity ratio from a maximum of 1 to 1 to a maximum of 2 to 1.

At the 2019 Annual Meeting, stockholders approved the application to the Company of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the 1940 Act. As a result, ~~our Adviser has agreed to reimburse a total of $5,292,191 as of September 30, 2017.~~

~~Table of Contents~~

Below is a table that provides information regarding expense support payments incurred by our Adviser pursuant to the Expense Support Agreement as well as other information relating to our ability to reimburse our Adviser for such payments.

Operating Expense
Ratio as of the Annualized Distribution
Date Expense Rate as of the Date Eligible for
Amount of Expense Amount of Offering Cost Payment Obligation Expense Payment Reimbursement
Quarter Ended Payment Obligation Payment Obligation Incurred^{( 1)} Obligation Incurred^{( 2)} Through
September 30, 2012 $21,826 432.69% — September 30, 2015
December 31, 2012 $26,111 531.09% — December 31, 2015
March 31, 2013 $30,819 N/A — March 31, 2016
June 30, 2013 $59,062 N/A — June 30, 2016
September 30, 2013 $65,161 N/A — September 30, 2016
December 31, 2013 $91,378 455.09% — December 31, 2016
March 31, 2014 $68,293 148.96% — March 31, 2017
June 30, 2014 $70,027 $898,518 23.17% — June 30, 2017
September 30, 2014 $92,143 $71,060 20.39% — September 30, 2017
December 31, 2014 $115,777 $90,860 11.15% — December 31, 2017
March 31, 2015 $134,301 $106,217 13.75% 2.01% March 31, 2018
June 30, 2015 $166,549 $167,113 14.10% 3.20% June 30, 2018
September 30, 2015 $147,747 $240,848 10.45% 3.20% September 30, 2018
December 31, 2015 $136,401 $280,376 7.41% 3.60% December 31, 2018
March 31, 2016 $157,996 $232,895 6.00% 3.52% March 31, 2019
June 30, 2016 $206,933 $285,878 4.95% 3.52% June 30, 2019
September 30, 2016 $201,573 $223,020 4.52% 3.13% September 30, 2019
December 31, 2016 $104,561 $168,876 4.45% 3.11% December 31, 2019
March 31, 2017 $80,847 $252,875 4.21% 3.19% March 31, 2020
June 30, 2017 $0 $176,963 3.98% 3.18% June 30, 2020
September 30, 2017 $0 $119,188 4.19% 3.00% September 30, 2020

~~(1)~~

~~“Operating Expense Ratio” includes all expenses borne by us, except for organizational and offering expenses, base management and incentive fees owed to our Adviser,financing fees and costs, interest expense, brokerage commissions and extraordinary expenses.~~ The Company did not achieve its minimum offering amount until June 25, 2014 and as a result, did not invest the proceeds from the offering and realize any income from investments prior to the end of its fiscal quarter.

~~(2)~~

Beginning the year ended December 31, 2016, the Adviser began to reimburse less than 100% of Operating Expenses, and for the quarter ended September 30, 2017, the Adviser did not reimburse any Operating Expenses. Of these Offering and Operating Expenses, $1,494,398 has exceeded the three-year period for repayment and will not be repayable by the Company.

~~The chart below, on a cumulative basis, discloses the components of the Reimbursement due from Sponsor reflected on the chart above:~~

~~Table of Contents~~

~~Operating Expenses~~ ~~are the amounts reimbursed by the Adviser for our operating costs and~~ ~~Offering Costs~~ ~~are the cumulative amount of organizational and offering expenses reimbursed to us by the Adviser~~ and subject to ~~future reimbursement per~~certain additional disclosure requirements and the ~~terms~~repurchase obligations described above, the minimum asset coverage ratio applicable to the Company was reduced from 200% to 150%, effective as of March 16, 2019.

Below is our ~~expense reimbursement agreement.~~

~~Due to related party offset~~ ~~represents~~quarterly asset coverage since June 30, 2019.



Revolving Credit Facility	Total Amount Outstanding		Asset Coverage per Unit(1)		Involuntary Liquidating Preference per Unit(2)	Average Market Value per Unit(2)
September 30, 2020	$	21,000,000	$	1,947	—	—
June 30, 2020	$	21,000,000	$	1,931	—	—
March 31, 2020	$	21,000,000	$	1,914	—	—
December 31, 2019	$	21,000,000	$	2,018	—	—
September 30, 2019	$	15,500,000	$	2,461	—	—
June 30, 2019	$	5,500,000	$	5,256	—	—

(1) The asset coverage ratio is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by secured senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the Asset Coverage Per Unit.
(2) This column is inapplicable.

On April 8, 2020, in connection with the ~~cash~~outbreak of the ~~Adviser paid directly for our operating~~Wuhan Virus pandemic, the SEC issued an Order Under Sections 6(c), 17(d), 38(a) and ~~offering expenses and~~ ~~Reimbursements received from sponsor~~ ~~are the amounts the Adviser paid in cash to us for reimbursement~~57(i) of ~~our operating and offering costs.~~

Either we or our Adviser may terminate the Expense Support Agreement at any time, except that if our Adviser terminates the agreement, it may not terminate its obligations to provide expense support payments after the commencement of any monthly period. If we terminate the Investment ~~Advisory Agreement, we will be required to repay our Adviser all expense support payments made by our Adviser within three years~~Company Act of 1940 and Rule 17d-1 Thereunder Granting Exemptions from Specified Provisions of the ~~date~~Investment Company Act and Certain Rules Thereunder, the 1940 Act Release No. 33837 (Apr. 8, 2020) (the “April 2020 Order”), which provides exemptions from certain requirements of ~~termination.~~

the 1940 Act. Section II of the April 2020 Order (i) affords BDCs greater flexibility in calculating asset coverage ratios for purposes of the 1940 Act asset coverage requirements, (ii) requires a BDC’s board of directors, including a required majority of such board, as defined in Section 57(o) of the 1940 Act, to determine that the issuance or sale of covered senior securities is permitted by this April 2020 Order and is in the best interests of the BDC and its stockholders, (iii) requires prior disclosure on Form 8-K of an election to rely on Section II of the April 2020 Order, and (iv) includes certain limitations on new investments, among other requirements detailed in the April 2020 Order. The Company has not taken advantage of the relief provided by the April 2020 Order.

Critical Accounting Policies

~~This discussion of our expected operating plans is based upon our expected~~

The accompanying consolidated financial statements ~~which will be~~have been prepared in accordance with United States generally accepted accounting principles ~~generally accepted in~~(“GAAP”) pursuant to the ~~United States,~~requirements for reporting on Form 10-Q, ASC 946, Financial Services—Investment Companies (“ASC 946”), and Articles 3, 6 and 12 of Regulation S-X. Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or ~~GAAP. The preparation~~an operating company which provides substantially all of ~~these~~its services to benefit us. Our consolidated financial statements ~~will require our management to make estimates~~include the accounts of Prospect Flexible Funding, LLC. All intercompany balances and ~~assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes~~transactions have been eliminated in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, we will describe our critical accounting policies in the notes to our future financial statements.

consolidation.

Valuation of Portfolio Investments

~~Our~~

The Company determines the fair value of its investment portfolio each quarter. The fair values of the Company’s investments are determined in good faith by the Company’s board of directors. The Company’s board of directors ~~has established procedures~~is solely responsible for the valuation of ~~our investment portfolio. These procedures~~the Company’s portfolio investments at fair value as determined in good faith pursuant to the Company’s valuation policy and consistently applied valuation process.

In connection with that determination, the Adviser provides the Company’s board of directors with portfolio company valuations which are ~~detailed below.~~

~~Investments~~based on relevant inputs which may include indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by third-party valuation services.

Level 1. Unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 3. Unobservable inputs for the asset or liability.

Securities that are publicly-traded are valued at the reported closing price on the valuation date. Securities traded in the over-the-counter market are valued by an independent pricing agent or more than one principal market maker, if available, otherwise a principal market maker or a primary market dealer. We value over-the-counter securities by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent pricing agent and screened for validity by such service. As a result of the volatility and disruption to the global economy from the Wuhan Virus pandemic (as further discussed in Note 8 to the consolidated financial statements), certain market quotations ~~are readily available will be valued at such market quotations. For most of our investments, market quotations will~~were not ~~be available. With respect~~deemed to ~~investments for which~~represent fair value.

below, and such investments are classified in Level 3 of the fair value hierarchy:


1.	Each portfolio company or investment ~~will be valued~~is reviewed by ~~our~~investment professionals of the Adviser ~~potentially~~ with ~~assistance from one or more~~the independent valuation firms engaged by our board of ~~directors;~~directors.


2.	~~the~~The independent valuation ~~firm, if involved, will conduct~~firms prepare independent ~~appraisals~~valuations based on their own independent assessments and ~~make an independent assessment of the value of each investment;~~issue their reports.


3.	~~the~~The audit committee of our board of directors ~~will review~~(the “Audit Committee”) reviews and ~~discuss the preliminary valuation prepared by our Adviser and that of~~discusses with the independent valuation ~~firm, if any;~~firms the valuation reports, and

~~the~~ then makes a recommendation to our board of directors ~~will discuss~~of the value for each investment.


4.	Our board of directors discusses valuations and ~~determine~~determines the fair value of ~~each investment~~such investments in our portfolio in good faith based on the input of ~~our~~the Adviser, the respective independent valuation ~~firm, if any,~~firms and the ~~audit committee.~~Audit Committee.

~~Investments will be~~

Our non-CLO investments are valued utilizing ~~a cost approach, a market approach, an income approach,~~broker quotes, yield technique, enterprise value (“EV”) technique, net asset value technique, liquidation technique, discounted cash flow technique, or a combination of ~~approaches,~~techniques, as appropriate. The ~~cost approach is most likely only to be used early in the life of an investment or if we determine that there has been no material change in the investment since purchase. The market approach~~yield technique uses ~~prices~~loan spreads for loans and other relevant information ~~generated~~implied by market ~~transactions~~data involving identical or comparable assets or ~~liabilities (including~~liabilities. Under the EV technique, the EV of a ~~business)~~portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation). To determine the EV, we

typically use a market (multiples) valuation approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions, and/or a discounted cash flow technique. The net asset value technique, an income approach, ~~uses valuation techniques~~is used to ~~convert~~derive a value of an underlying investment by dividing a relevant earnings stream by an appropriate capitalization rate. The liquidation technique is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow technique converts future ~~amounts (for example,~~ cash flows or ~~earnings)~~earnings to a range of fair values from which a single ~~present value amount, calculated using~~estimate may be derived utilizing an appropriate discount rate. The fair value measurement is based on the net present value indicated by current market expectations about those future amounts. ~~In following these approaches, the~~

Our investments in bonds and loans are classified as Level 3 fair value measured securities under ASC 820.

The types of factors that ~~we may take~~are taken into account in fair value ~~pricing our investments~~determination include, as ~~relevant: available current~~relevant, market ~~data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples,~~changes in expected returns for similar investments, performance improvement or deterioration, security covenants, call protection provisions, and information rights, the nature and realizable value of any collateral, the ~~Company’s~~issuer’s ability to make payments and its earnings and ~~discounted~~ cash flows, the principal markets in which the ~~Company~~issuer does business, ~~comparisons of~~publicly available financial ratios of peer companies, ~~that are public, M&A comparables, the principal market and~~comparisons to traded securities, enterprise values, ~~among~~and other relevant factors.

~~Table of Contents~~

We have adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (formerly Statement of Financial Accounting Standards No. 157, Fair Value Measurements), which definesOur investments in CLOs are classified as Level 3 fair value ~~establishes~~measured securities under ASC 820 and are valued using a ~~framework for measuring fair~~discounted multi-path cash flow model. The CLO structures are analyzed to identify the risk exposures and to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows from the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market as well as certain benchmark credit indices are considered, to determine the value ~~in accordance with generally accepted accounting principles and expands disclosures about fair value measurements.~~

~~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. It defines fair value as the price an entity would receive when an asset is sold or when a liability is transferred in an orderly transaction between market participants at the measurement date.each CLO investment. In addition, ~~ASC Topic 820 provides~~we generate a ~~framework~~single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for ~~measuring~~the value derived from the multi-path cash flows. We are not responsible for and have no influence over the asset management of the portfolios underlying the CLO investments we hold, as those portfolios are managed by non-affiliated third-party CLO collateral managers. The main risk factors are default risk, prepayment risk, interest rate risk, downgrade risk, and credit spread risk.

Impact of the novel coronavirus (the "Wuhan Virus") pandemic

As of September 30, 2020, there remains to be global uncertainty surrounding the Wuhan Virus pandemic, which has caused severe disruptions in the global economy and has negatively impacted the fair value and ~~establishes~~performance of certain investments since the pandemic began. For the three months ended September 30, 2020, the resulting changes in net unrealized depreciation on investments were largely due to widening credit spreads as market participants expected a ~~three-level hierarchy~~higher yield on similar investments given the significant market volatility generated by the Wuhan Virus pandemic. To a lesser extent, the changes in net unrealized depreciation on investments for the quarter for certain of our portfolio companies also reflected other factors such as specific industry concerns, uncertainty about the duration of business shutdowns and near-term liquidity needs. For additional information concerning the Wuhan Virus pandemic and its potential impact on our business and our operating results, see Part II - Other information, Item 1A. Risk Factors, “Risk Factors - The Wuhan Virus pandemic has caused severe disruptions in the global economy, which has had, and may continue to have, a negative impact on our portfolio companies and our business and operations.”

Valuation of Other Financial Assets and Financial Liabilities

ASC 825, Financial Instruments, specifically ASC 825-10-25, permits an entity to choose, at specified election dates, to measure eligible items at fair value ~~measurements based upon~~(the "Fair Value Option"). We have not elected the ~~transparency~~Fair Value Option to report selected financial assets and financial liabilities.

Investment Risks

Our investments are subject to a variety of ~~inputs to~~risks. Those risks include the ~~valuation of an asset or liability as of~~following:

Market Risk

Market risk represents the ~~measurement date. The three levels of valuation hierarchy established~~potential loss that can be caused by ~~ASC Topic 820 are defined as follows:~~

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

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

~~Level 3: Unobservable inputs for the asset or liability.~~

~~In all cases, the level~~a change in the fair value ~~hierarchy within which~~of the ~~fair value measurement in its entirety falls has been determined based on~~financial instrument.

Credit Risk

Credit risk represents the ~~lowest level of input~~risk that ~~is significant~~we would incur if the counterparties failed to perform pursuant to the ~~fair value measurement. Our assessment~~terms of their agreements with us.

Liquidity Risk

Liquidity risk represents the ~~significance~~possibility that we may not be able to rapidly adjust the size of our investment positions in times of high volatility and financial stress at a ~~particular input to the fair value measurement~~reasonable price.

Interest Rate Risk

Interest rate risk represents a change in ~~its entirety requires judgment and considers factors specific to each investment.~~

~~In accordance with ASC Topic 820,~~interest rates, which could result in an adverse change in the fair value of an interest-bearing financial instrument.

Prepayment Risk

Many of our debt investments ~~is defined as~~allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the ~~price~~maturity of the security and making us less likely to fully earn all of the expected income of that ~~we would receive upon selling an investment~~security and reinvesting in ~~an orderly transaction~~a lower yielding instrument.

Structured Credit Related Risk

CLO investments may be riskier and less transparent to ~~an independent buyer~~us than direct investments in underlying companies. CLOs typically will have no significant assets other than their underlying senior secured loans. Therefore, payments on CLO investments are and will be payable solely from the ~~principal or most advantageous market in which that investment is transacted.~~

cash flows from such senior secured loans.

Revenue Recognition

~~We record interest~~

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual ~~basis to~~basis. Accretion of such purchase discounts or amortization of such premiums is calculated using the ~~extent that we expect to collect such amounts. For loans~~effective interest method as of the settlement date and ~~debt securities with contractual PIK~~adjusted only for material amendments or prepayments. Upon the prepayment of a loan or bond, any unamortized discount or premium is recorded as interest ~~which represents contractual interest accrued and added to~~income. The Company records dividend income on 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~~ex-dividend date. The Company does not accrue as a receivable interest or dividends on loans and ~~debt~~ securities ~~for accounting purposes~~ if ~~we have~~it has reason to doubt ~~our~~its ability to collect such ~~interest. Original issue discounts, market discounts~~income. Loans are placed on non-accrual status when there is reasonable doubt that principal or ~~premiums~~interest will be collected. Unpaid accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans are ~~accreted~~either applied to the cost basis or ~~amortized using~~interest income, depending upon management’s judgment of the collectibility of the loan receivable. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management’s judgment, is likely to remain current and future principal and interest collections when due are probable. Interest received and applied against cost while a loan is on non-accrual, and PIK interest capitalized but not recognized while on non-accrual, is recognized prospectively on the effective yield basis through maturity of the loan when placed back on accrual status, to the extent deemed collectible by management. As of June 30, 2020, the Company did not have any loans on non-accrual status. Loan origination fees are capitalized and the Company accretes such amounts as interest ~~method~~income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees are recorded as interest income. ~~We record~~Upfront structuring fees are recorded as fee income when earned. The Company records prepayment premiums on loans and ~~debt~~ securities as fee income when it receives such amounts.

Interest income from investments in Structured Subordinated Notes (typically preferred shares, income notes or subordinated notes of CLO funds) is recorded based on an estimation of an effective yield to expected maturity utilizing assumed future cash flows in accordance with ASC 325-40, Beneficial Interest in the Securitized Financial Assets. The Company monitors the expected cash inflows from CLO equity investments, including the expected residual payments, and the estimated effective yield is determined and updated periodically.

Due from and to Adviser

Amounts due from the Adviser are for amounts waived under the ELA (as such term is defined in Note 4) and amounts due to the Adviser are for base management fees, incentive fees, operating expenses paid on our behalf and offering and organization expenses paid on our behalf. The due from and due to Adviser balances are presented net on the Consolidated Statements of Assets and

Liabilities as of September 30, 2020and are presented net on the Consolidated Statements of Assets and Liabilities as of June 30, 2020. All balances due from and to the Adviser are settled quarterly.

Payment-In-Kind Interest

The Company has certain investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision, which represents contractual interest or dividends that are added to the principal balance and recorded as income. ~~Dividend~~For the three months ended September 30, 2020 and 2019, PIK interest included in interest income totaled $7,507 and $29, respectively. The Company stops accruing PIK interest when it is determined that PIK interest is no longer collectible. To maintain RIC tax treatment, and to avoid corporate tax, substantially all of this income must be paid out to the stockholders in the form of distributions, even though the Company has not yet collected the cash.

Offering Costs and Expenses

The Company will incur certain costs and expenses in connection with registering to sell shares of its common stock. These costs and expenses principally relate to certain costs and expenses for advertising and sales, printing and marketing costs, professional and filing fees. Offering costs incurred by the Company are capitalized to deferred offering costs on the Consolidated Statements of Assets and Liabilities and amortized to expense over the 12 month period following such capitalization on a straight line basis.

Dividends and Distributions

Dividends and distributions to common stockholders are recorded on the record date. The amount, if any, to be paid as a monthly dividend or distribution is ~~recognized~~approved by our board of directors quarterly and generally depends on ~~an accrual basis~~our earnings, financial condition, maintenance of our tax treatment as a RIC, compliance with applicable BDC regulations and such other factors as our Board deems relevant from time to time. Net realized capital gains, if any, are distributed at least annually.

Financing Costs

We record origination expenses related to our Revolving Credit Facility as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation of our Revolving Credit Facility. (See Note 11 to the ~~extent that we expect to collect such amount.~~

consolidated financial statements for further discussion).

Per Share Information

Net increase or decrease in net assets resulting from operations per share is calculated using the weighted average number of common shares outstanding for the period presented. As of September 30, 2020, there were no issued convertible securities.

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

~~We will measure net~~

Gains or losses on the sale of investments are calculated by using the specific identification method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront ~~fees and prepayment penalties.~~fees. Net change in unrealized appreciation or depreciation ~~will reflect~~reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized ~~appreciation~~gains or ~~depreciation,~~losses when gains or losses are realized.

~~Table of Contents~~

~~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~~Federal 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.

~~Organization and Offering Expenses~~

We have incurred certain expenses in connection with the registration of shares of our common stock for sale as discussed in Note 1 of our financial statements– Description of Business and Summary of Significant Accounting Policies. These costs principally relate to professional fees, fees paid to the SEC and fees paid to the Financial Industry Regulatory Authority. These costs were included in deferred offering costs in the accompanying balance sheets. Simultaneous with the sale of common shares, the deferred offering costs will be reclassified to stockholders’ equity upon the issuance of shares.

~~Federal~~State Income Taxes

The Company has elected to be treated ~~beginning with our fiscal year ending December 31, 2012, and intend to qualify annually thereafter,~~ as a ~~RIC~~regulated investment company (“RIC”) under Subchapter M of the ~~Code.~~Internal Revenue Code of 1986, as amended (the “Code”), and intends to continue to comply with the requirements of the Code applicable to RICs. As a RIC, ~~we generally will not have~~the Company is required to ~~pay corporate-level federal income taxes on any ordinary income or capital gains that we~~ distribute to our stockholders from our tax earnings and profits. To maintain our RIC tax treatment, we must, among other things, meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of ~~our~~its investment company taxable income and intends to distribute (or retain through a deemed distribution) all of its investment company taxable income and net capital gain to stockholders; therefore, the Company has made no provision for income taxes. The character of income and gains that the Company will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.

If the Company does not distribute (or is not deemed to have distributed) at least 98% of its annual ordinary income and ~~realized~~98.2% of its net ~~short-term~~ capital gains in the calendar year earned, it will generally be required to pay an excise tax equal to 4% of the amount by which 98% of its annual ordinary income and 98.2% of its capital gains exceeds the distributions from such taxable income for the year. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, it accrues excise taxes, if any, on estimated excess taxable income. As of September 30, 2020, the Company does not expect to have any excise tax due for the 2020 calendar year. Thus, the Company has not accrued any excise tax for this period.

deduct distributions to stockholders, nor would it be required to make distributions. Distributions would generally be taxable to the Company’s individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of its current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, the Company would be required to distribute to its shareholders its accumulated earnings and profits attributable to non-RIC years. In addition, if the Company failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, it would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized ~~net long-term capital~~if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years.

The Company follows ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of September 30, 2020, the Company did not record any unrecognized tax benefits or liabilities. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although the Company files both federal and state income tax returns, its major tax jurisdiction is federal. The Company’s federal tax returns for the tax years ended December 31, 2017 and thereafter remain subject to examination by the Internal Revenue Service.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform. The amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is effective as of March 12, 2020 through December 31, 2022. Management is currently evaluating the impact of the optional guidance on the Company's consolidated financial statements and disclosures. The Company did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the three months ended September 30, 2020.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The standard will modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU No. 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted upon issuance of this ASU. The effectiveness of the amended guidance in ASU 2018-13 did not have a material effect on our consolidated financial statements and disclosures.

for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance in FASB ASC Subtopic No. 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, related to the subsequent measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets under the effective yield method. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The effectiveness of the amended guidance in ASU 2016-13 did not have a material effect on our consolidated financial statements and disclosures.

Tax Cuts and Jobs Act

anticipated particularly in light of the current presidential election in the United States and the impact the presidential and congressional elections may have on federal regulation and taxation. We will continue to monitor and account for the future impacts of federal regulatory and state guidance in the interim period in which such additional guidance is issued.

~~Item 3: Quantitative and Qualitative Disclosures About Market Risk.~~

Item 3: Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in interest rates and equity price risk. Uncertainty with respect to the economic effects of the Wuhan Virus outbreak has introduced significant volatility in the financial markets, and the effects of this volatility could materially impact our market risks, including those listed below. For additional information concerning the Wuhan Virus pandemic and its potential impact on our business and our operating results, see Part II, Item 1A. Risk Factors, “Risk Factors - The Wuhan Virus pandemic has caused severe disruptions in the global economy, which has had, and may continue to have, a negative impact on our portfolio companies and our business and operations.”

We are subject to financial market risks, including changes in interest rates. As of September 30, ~~2017, 95.6%~~2020, 98% (based on fair value) of our investments paid variable interest rates ~~none~~and 2% paid fixed rates (considering interest rate flows for floating rate instruments, excluding our investments in equity and ~~4.4% were non-income producing equity.~~structured subordinated notes). A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to certain variable rate investments we hold and to declines in the value of any fixed rate investments we may hold in the future.

The following table shows the ~~effect over a twelve-month period~~estimated annual impact of changes in interest rates (considering interest rate flows for floating rate instruments, excluding our investments in equity and structured subordinated notes) on our interest income, interest expense and net interest income, assuming no changes in our investment portfolio ~~and borrowing arrangements~~ in effect as of September 30, ~~2017:~~

~~LIBOR Basis Point Change~~	~~Percentage~~ ~~Change in Net~~ ~~Interest Income~~
~~Down 25 basis points~~		~~-3.23~~	%
~~Current LIBOR~~		~~0.00~~	%
~~Up 100 basis points~~		~~17.27~~	%
~~Up 200 basis points~~		~~30.21~~	%
~~Up 300 basis points~~		~~43.15~~	%

2020:

~~Table of Contents~~



LIBOR Basis Point Change	Interest Income			Interest Expense			Net Investment Income
Up 300 basis points	$	964,494		$	630,000		$	334,494
Up 200 basis points	$	642,996		$	420,000		$	222,996
Up 100 basis points	$	321,498		$	210,000		$	111,498
Down 100 basis points	$	(31,008	)	$	(49,115	)	$	18,107

Because we may borrow money to make investments, our net investment income may be dependent on the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of increasing interest rates, our cost of funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

We may also face risk due to the lack of liquidity in the marketplace which could prevent us from raising sufficient funds to adequately invest in a broad pool of assets. We are subject to other financial market risks, including changes in interest rates. However, at this time, with no portfolio investments, this risk is immaterial.

In addition, we may have risk regarding portfolio valuation. See “Part I - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Valuation of ~~Portfolio~~ Investments.”

~~Item 4: Controls and Procedures.~~

Item 4: Controls and Procedures.

Evaluation of Disclosure Controls

~~In accordance with Rules 13a-15(b)~~ and ~~15d-15(b)~~Procedures

As of September 30, 2020, we evaluated the effectiveness of the ~~Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision~~design and ~~with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness~~operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) ~~and Rule 15d-15(e)~~ of the ~~Exchange~~1934 Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as ~~of the end of the period covered by this Quarterly Report on Form 10-Q and determined that~~appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures. We are ~~effective.~~

continually monitoring and assessing the Wuhan Virus situation to determine any potential impact on the design and operating effectiveness of our internal controls over financial reporting.

Change in Internal Control Over Financial Reporting

~~No change occurred~~

There have been no changes in our internal control over financial reporting ~~(as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act)~~ during the ~~three months~~quarter ended September 30, ~~2017~~2020, that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

~~Part II—Other Information~~

PART II

~~Item 1: Legal Proceedings.~~

Item 1. Legal Proceedings

From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, employment, tax, regulation, contract or other matters. The ~~Company is not currently~~resolution of such matters as may arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any material legal proceedings ~~nor, to our knowledge, are any legal proceedings threatened against us or our subsidiaries.~~

as of September 30, 2020.

~~Item 1A: Risk Factors.~~

~~There have been no material changes from~~

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed below and the risk factors ~~set forth~~in Part I, “Item 1A. Risk Factors” in our ~~annual~~Annual Report on Form 10-K for the year ended June 30, 2020, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

The Wuhan Virus pandemic has caused severe disruptions in the global economy, which has had, and may continue to have,a negative impact on our portfolio companies and our business and operations.

As of the filing date of this Quarterly Report, there is an outbreak of a highly contagious form of a novel coronavirus (“Wuhan Virus”). The Wuhan Virus has been declared a pandemic by the World Health Organization and, in response to the outbreak, the U.S. Health and Human Services Secretary has declared a public health emergency in the United States. The Wuhan Virus has had a devastating impact on the global economy, including the U.S. economy, and has resulted in a global economic rescission.

Many states, including those in which we and our portfolio companies operate, have issued orders requiring the closure of non-essential businesses and/or requiring or encouraging residents to stay at home. The Wuhan Virus pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, or the re-introduction of business shutdowns, cancellations of and restrictions on events and travel, significant reductions in demand for certain goods and services, reductions in and restrictions on business activity and financial transactions, supply chain interruptions and overall economic and financial market instability both globally and in the United States. Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter. While several countries, as well as certain states, counties and cities in the United States, have begun to lift the public health restrictions with a view to reopening their economies, recurring Wuhan Virus outbreaks have led to the re-introduction of such restrictions in certain states in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. Additionally, the absence of viable treatment options or a vaccine could lead people to continue to self-isolate and not participate in the economy at prepandemic levels for a prolonged

period of time. Potential consequences of the current unprecedented measures taken in response to the spread of Wuhan Virus, and current market disruptions and volatility on our business include, but are not limited to:

sudden, unexpected and/or severe declines in the market price of our securities or net asset value;

inability of the Company to accurately or reliably value its portfolio;

inability of the Company to comply with certain asset coverage ratios that would prevent the Company from paying dividends to our common stockholders and that could result in breaches of covenants or events of default under our credit agreement or debt indentures;

inability of the Company to pay any dividends and distributions or service its debt;

inability of the Company to maintain its status as a regulated investment company under the Code;

potentially severe, sudden and unexpected declines in the value of our investments;

increased risk of default or bankruptcy by the companies in which we invest;

increased risk of companies in which we invest being unable to weather an extended cessation of normal economic activity and thereby impairing their ability to continue functioning as a going concern;

reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of Wuhan Virus, which could impact the continued viability of the companies in which we invest;

companies in which we invest being disproportionally impacted by governmental action aimed at slowing the spread of Wuhan Virus or mitigating its economic effects;

limited availability of new investment opportunities;

inability for us to replace our existing leverage when it becomes due or replace it on terms as favorable as our existing leverage;

a reduction in interest rates, including interest rates based on LIBOR and similar benchmarks, which may adversely impact our ability to lend money at attractive rates; and

general threats to the Company’s ability to operate successfully as a business development company.

The Wuhan Virus pandemic (including the preventative measures taken in response thereto) has to date (i) created significant business disruption issues for certain of our portfolio companies, and (ii) materially and adversely impacted the value and performance of certain of our portfolio companies. The Wuhan Virus pandemic is having a particularly adverse impact on industries in which certain of our portfolio companies operate, including aircraft leasing, energy, hospitality, travel, retail and restaurants. Certain of our portfolio companies in other industries have also been significantly impacted. The Wuhan Virus pandemic is continuing as of the filing date of this Quarterly Report, and its extended duration may have further adverse impacts on our portfolio companies after September 30, 2020, including for the reasons described below. Although on March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which contains provisions intended to mitigate the adverse economic effects of the Wuhan Virus pandemic, it is uncertain whether, or how much, our portfolio companies will be able to benefit from the CARES Act or any other subsequent legislation intended to provide financial relief or assistance. As a result of this disruption and the pressures on their liquidity, certain of our portfolio companies have been, or may continue to be, incentivized to draw on most, if not all, of the unfunded portion of any revolving or delayed draw term loans made by us, subject to availability under the terms of such loans.

The effects described above on our portfolio companies have, for certain of our portfolio companies to date, impacted their ability to make payments on their loans on a timely basis and in some cases have required us to amend certain terms, including payment terms. In addition, an extended duration of the Wuhan Virus pandemic may impact the ability of our portfolio companies to continue making their loan payments on a timely basis or meeting their loan covenants. The inability of portfolio companies to make timely payments or meet loan covenants may in the future require us to undertake similar amendment actions with respect to other of our investments or to restructure our investments. The amendment or restructuring of our investments may include the need for us to make additional investments in our portfolio companies (including debt or equity investments) beyond any existing commitments, exchange debt for equity, or change the payment terms of our investments to permit a portfolio company to pay a portion of its interest through payment-in-kind, which would defer the cash collection of such interest and add it to the principal balance, which would generally be due upon repayment of the outstanding principal.

The Wuhan Virus pandemic has adversely impacted the fair value of our investments as of September 30, 2020, and the values assigned as of this date may differ materially from the values that we may ultimately realize with respect to our investments. The impact of the Wuhan Virus pandemic may not yet be fully reflected in the valuation of our investments as our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that is often from a time period earlier, generally two to three months, than the period for which we are reporting. Additionally, we may not have yet received information or certifications from our portfolio companies that indicate any or the full extent of declining performance or non-compliance with debt covenants, as applicable, as a result of the Wuhan Virus pandemic. As a result, our valuations at September 30,

2020 may not show the complete or continuing impact of the Wuhan Virus pandemic and the resulting measures taken in response thereto. In addition, write downs in the value of our investments have reduced, and any additional write downs may further reduce, our net asset value (and, as a result, our asset coverage calculation). Accordingly, we may continue to incur additional net unrealized losses or may incur realized losses after September 30, 2020, which could have a material adverse effect on our business, financial condition and results of operations.

The volatility and disruption to the global economy from the Wuhan Virus pandemic has affected, and is expected to continue to affect, the pace of our investment activity, which may have a material adverse impact on our results of operations. Such volatility and disruption have also led to the increased credit spreads in the private debt capital markets.

In response to the Wuhan Virus pandemic, Prospect Capital Management L.P. instituted a work from home policy. Although certain employees are currently allowed to return to their offices in certain circumstances, subject to health and safety protocols, it is expected that most employees will continue to work remotely for the foreseeable future. Extended periods of remote working could strain our technology resources and introduce operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the Wuhan Virus pandemic.

Despite actions of the U.S. federal government and foreign governments, the uncertainty surrounding the Wuhan Virus pandemic and other factors has contributed to significant volatility and declines in the global public equity markets and global debt capital markets, including the market price of shares of our common stock and the trading prices of our issued debt securities. Market conditions may make it difficult for us to raise equity capital because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset value without general approval by our stockholders. Moreover, these market conditions may make it difficult to access or obtain new indebtedness with similar terms to our existing indebtedness or otherwise have a negative effect on our cost of capital. See “Risk Factors-Risks Relating to Our Business-Capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States and abroad, which may have a negative impact on our business and operations” in our Annual Report on Form 10-K for the fiscal year ended ~~December 31, 2016.~~

June 30, 2020.

It is virtually impossible to determine the ultimate impact of Wuhan Virus at this time. Further, the extent and strength of any economic recovery after the Wuhan Virus pandemic abates, including following any "second wave" or other intensifying of the pandemic, is uncertain and subject to various factors and conditions. Even after the Wuhan Virus pandemic subsides, the U.S. economy and most other major global economies may continue to experience a recession. Accordingly, an investment in the Company is subject to an elevated degree of risk as compared to other market environments.

Accordingly, an investment in the Company is subject to an elevated degree of risks as compared to other market environments.

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

~~None.~~

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

In order to satisfy the reinvestment portion of our dividends for the three months ended September 30, 2020, we issued the following shares of common stock to stockholders of record on the dates noted below as part of our distribution reinvestment plan. These issuances were not subject to the registration requirements of the Securities Act of 1933, as amended.



Date of Issuance	Record Date	Number of Shares	Purchase Price per Share
July 6, 2020	June 5, 12, 19, and 26, 2020	7,120	$	8.25
August 7, 2020	July 6, 10, 17, 24 and 31, 2020	8,839	$	8.25
September 4, 2020	August 7, 14, 21 and 28, 2020	6,795	$	8.49
October 2, 2020	September 4, 11, 18 and 25, 2020	7,247	$	8.49

On June 9, 2020, under our share repurchase program, we made an offer to purchase (the "Tender Offer") up to the number of shares of our issued and outstanding Class A common stock we can repurchase with the proceeds we receive from the issuance of shares under our distribution reinvestment plan prior to the expiration of the Tender Offer. The Tender Offer is for cash at a price equal to the net offering price per share determined as of July 10, 2020 (“Purchase Price”). The offer expired at 4:00 P.M., Eastern Time, on July 8, 2020 and a total of 65,266 shares were validly tendered and not withdrawn pursuant to the offer. In accordance with the terms of the offer, the Company purchased 28,786 shares validly tendered and not withdrawn at a price equal to $8.25 per share for an aggregate purchase price of approximately $237,488.

On September 17, 2020, under our share repurchase program, we made an offer to purchase (the "Tender Offer") up to the number of shares of our issued and outstanding Class A common stock we can repurchase with the proceeds we receive from the issuance of shares under our distribution reinvestment plan prior to the expiration of the Tender Offer. The total proceeds under the distribution reinvestment plan prior to the Tender Offer was $229,113. The Tender Offer is for cash at a price equal to the net offering price per share determined as of October 20, 2020 (“Purchase Price”). The offer expired at 4:00 P.M., Eastern Time, on October 16, 2020 and a total of 181,137 shares were validly tendered and not withdrawn pursuant to the offer. In accordance with the terms of the offer, the Company purchased 26,986 shares validly tendered and not withdrawn at a price equal to $8.49 per share for an aggregate purchase price of approximately $229,113.

~~Item 3: Defaults Upon Senior Securities.~~

~~None.~~

Item 3. Default Upon Senior Securities

Not applicable.

~~Item 4: Mine Safety Disclosures.~~

~~None.~~

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The following exhibits are filed as part of this report or hereby incorporated into this report by reference to exhibits previously filed with the SEC (according to the number assigned to them in Item 601 of Regulation S-K):

Exhibit No.Description

3.1 Fourth Amended Articles of Incorporation(1)

3.2 Articles Supplementary(2)

3.3 Articles Supplementary(3)

3.4 Articles of Merger of the Registrant(4)

3.5 Articles of Amendment(5)

3.6 Second Amended and Restated Bylaws(6)

~~Item 5: Other Information.~~

~~None.~~

~~Table of Contents~~

~~Item 6: Exhibits.~~

~~EXHIBIT INDEX~~


~~Number~~ 31.1		~~Description~~

~~31.1~~		Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *


31.2		Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *


32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002 *


32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

________________________

~~Table of Contents~~

* Filed herewith.


(1)	Incorporated by reference to Exhibit 2(a) to the Post-Effective Amendment No. 7 to the Registrant’s Registration Statement on Form N-2 (SEC File No. 333-174873) filed with the SEC on November 1, 2013.


(2)	Incorporated by reference to Exhibit 2(a)(1) to the Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form N-2 (SEC File No. 333-206730) filed with the SEC on March 3, 2016.


(3)	Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on September 23, 2019.


(4)	Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on April 1, 2019.


(5)	Incorporated by reference to Exhibit 2(a)(4) to the Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (SEC File No. 333-230251) filed with the SEC on August 8, 2020.


(6)	Incorporated by reference to Exhibit 2(b)(1) to the Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (SEC File No. 333-230251) filed with the SEC on August 8, 2020.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.~~


~~Dated: November 14, 2017~~	~~Triton Pacific Investment Corporation, Inc.~~

	By	~~/s/ Craig J. Faggen~~
		~~Craig J. Faggen~~ ~~Chief Executive Officer~~ ~~(Principal Executive Officer)~~

~~Dated: November 14, 2017~~	By	~~/s/ Michael L. Carroll~~
		~~Michael L. Carroll~~ ~~Chief Financial Officer~~ ~~(Principal Accounting and Financial Officer)~~

authorized on November 12, 2020.

PROSPECT FLEXIBLE INCOME FUND, INC. (FORMERLY KNOWN AS TP FLEXIBLE INCOME FUND, INC.)

By: /s/ M. Grier Eliasek

M. Grier Eliasek

Chief Executive Officer

(Principal Executive Officer)

By: /s/ Kristin Van Dask

Kristin Van Dask

Chief Financial Officer

(Principal Accounting and Financial Officer)

~~Maryland~~			~~45-2460782~~

Maryland		45-2460782
(State or other jurisdiction of	~~(I.R.S. Employer~~
incorporation or organization)		(I.R.S. Employer Identification No.)

10 East 40^th Street, 42^nd Floor New York, NY		10016
(Address of principal executive offices)		(Zip Code)



Large accelerated filer	☐o	Accelerated filer	☐o
Non-accelerated filer	x	Smaller reporting company	o

~~Non-accelerated filer~~	~~☒ (Do not check if a smaller reporting company)~~	~~Smaller reporting~~Emerging growth company	☐o

☒
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

	September 30,
	2017			December 31,
	(unaudited)			2016
ASSETS

Affiliate Investments, at fair value (amortized cost - $1,916,389 and $1,896,901, respectively)	$	509,993		$	1,875,202
Non-affiliate Investments, at fair value (amortized cost - $11,017,651 and $8,705,606, respectively)		10,975,686			8,728,971
Cash		5,874,634			3,788,901
Principal and interest receivable		26,606			19,305
Prepaid expenses		67,855			46,052
Reimbursement due from Adviser (see Note 4)		330,587			106,583

TOTAL ASSETS	$	17,785,361		$	14,565,014

LIABILITIES AND NET ASSETS

LIABILITIES
Payable for investments purchased	$	1,237,500		$	1,061,625
Accounts payable and accrued liabilities		340,248			225,000
Stockholder distributions payable		—			16,574
Due to related parties (see Note 4)		1,239			33,113
TOTAL LIABILITIES		1,578,987			1,336,312

COMMITMENTS AND CONTINGENCIES(see Note 9)

NET ASSETS
Common stock, $0.001 par value, 75,000,000 shares authorized, 1,338,115.18 and 976,407.17 shares issued and outstanding respectively		1,338			976
Capital in excess of par value		18,070,020			13,255,764
Accumulated undistributed net realized gains		14,444			21,925
Accumulated overdistributed net investment income		(431,069	)		(51,629	)
Accumulated unrealized appreciation (depreciation) on investments		(1,448,359	)		1,666
TOTAL NET ASSETS		16,206,374			13,228,702

TOTAL LIABILITIES AND NET ASSETS	$	17,785,361		$	14,565,014

Net asset value per share of common stock at period end	$	12.11		$	13.55

	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
INVESTMENT INCOME
Interest from affiliate investments	$	—		$	9,540		$	19,488		$	27,994
Interest from non-control/ non-affiliate investments		198,075			104,933			536,481			264,444
Fee income from non-control/ non-affiliate investments		29,413			186			40,697			435

Total investment income		227,488			114,659			596,666			292,873

OPERATING EXPENSES
Management fees		83,459			60,625			246,154			156,957
Capital gains incentive fees (see Notes 2 and 4)		—			11,265			(334	)		31,609
Administrator expense		70,495			78,840			213,473			242,332
Professional fees		99,062			33,694			214,914			105,259
Insurance expense		17,779			19,142			57,251			46,763
Other operating expenses		13,095			9,272			23,168			15,189

Total operating expenses		283,890			212,838			754,626			598,109

Expense reimbursement and management fee offsets from Adviser		—			(201,573	)		(80,847	)		(566,501	)

Net expenses		283,890			11,265			673,779			31,608

Net investment (loss)/ income		(56,402	)		103,394			(77,113	)		261,265

REALIZED AND UNREALIZED GAIN/(LOSS)
Net realized gain on non-affiliated investments		26,569			—			91,134			(1,167	)
Net increase (decrease) in unrealized appreciation on affiliate investments		(88,923	)		—			(1,350,763	)		53,879
Net (decrease)/ increase in unrealized (depreciation)/ appreciation on non-control/ non-affiliate investments		(42,474	)		56,324			(99,262	)		104,167

Total net realized and unrealized gain (loss) on investments		(104,828	)		56,324			(1,358,891	)		156,879

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS	$	(161,230	)	$	159,718		$	(1,436,004	)	$	418,144

PER SHARE INFORMATION - Basic and Diluted
Net increase (decrease) in net assets resulting from operations per share	$	(0.13	)	$	0.19		$	(1.26	)	$	0.57

Weighted average common shares outstanding - basic and diluted		1,266,225			827,457			1,143,880			731,866



	Common Stock
For the Thee Months Ended September 30, 2020	Shares		Par			Paid-in Capital in Excess of Par			Distributable Earnings (Loss)			Net Assets
Balance as of June 30, 2020	2,363,011		$	2,363		$	27,133,944		$	(7,577,907	)	$	19,558,400
Net increase in net assets resulting from operations
Net investment income	—		—			—			31,475			31,475
Net realized gains (losses) on investments	—		—			—			11,050			11,050
Net change in unrealized gains (losses) on investments	—		—			—			464,583			464,583
Distributions to Shareholders (Note 5)
Distributions from earnings	—		—			—			(18,437		)	(18,437		)
Return of capital distributions	—		—			(351,166		)	—			(351,166		)
Capital Transactions
Shares issued	27,815		28			250,972			—			251,000
Commissions and fees on shares issued	—		—			(15,059		)	—			(15,059		)
Shares issued through reinvestment of dividends	22,753		23			189,321			—			189,344
Repurchase of common shares	(28,786	)	(29		)	(237,459		)	—			(237,488		)
Tax Reclassification of Net Assets (Note 6)	—		—			(362		)	362			—
Total Increase (Decrease) for the three months ended September 30, 2020	21,782		22			(163,753		)	489,033			325,302
Balance as of September 30, 2020	2,384,793		$	2,385		$	26,970,191		$	(7,088,874	)	$	19,883,702

Portfolio Company	Footnotes	Industry	Rate (b)	Floor		Maturity	Principal Amount/ Number of Shares		Amortized Cost^(f)		Fair Value^(c)
Senior Secured Loans—First Lien—47.03%
LSF9 Atlantis Holdings, LLC		Telecommunications	L+6.00% (7.24%)	1.24	%	5/1/2023		496,875	$	492,146	$	499,876
California Pizza Kitchen, Inc.		Beverage, Food & Tobacco	L+6.00% (7.24%)	1.24	%	8/19/2022		346,500		343,659		344,191
CareCentrix, Inc.		Healthcare & Pharmaceuticals	L+5.00% (6.33%)	1.33	%	7/8/2021		196,000		192,617		197,593
CareerBuilder		Business Services	L+6.75% (8.08%)	1.33	%	7/27/2023		500,000		485,390		489,793
Coronado Group LLC		Metals & Mining	L+7.00% (8.33%)	1.33	%	6/6/2023		498,750		484,503		503,738
CRCI Holdings, Inc.		Business Services	L+5.50% (6.83%)	1.33	%	8/31/2023		324,564		321,612		326,795
Deluxe Entertainment Services Group, Inc.		Media: Diversified and Production	L+5.50% (6.81%)	1.31	%	2/28/2020		343,112		335,523		345,471
FHC Health Systems, Inc.		Healthcare & Pharmaceuticals	L+4.00% (5.24%)	1.24	%	12/23/2021		121,875		121,168		119,183
Flavors Holdings, Inc. Tranche B		Beverage, Food & Tobacco	L+5.75% (7.08%)	1.33	%	4/3/2020		106,250		104,000		101,203
GK Holdings, Inc.		Business Services	L+6.00% (7.33%)	1.33	%	1/20/2021		121,563		121,045		114,877
IG Investments Holdings, LLC		Business Services	L+4.00% (5.33%)	1.33	%	10/29/2021		345,543		344,153		349,287
InfoGroup Inc.		Business Services	L+5.00% (6.33%)	1.33	%	3/28/2023		497,500		492,911		486,928
Jackson Hewitt, Inc.		Business Services	L+7.00% (8.31%)	1.31	%	7/30/2020		186,138		183,700		180,089
McAfee LLC		Business Services	L+4.50% (5.83%)	1.33	%	9/27/2024		250,000		247,500		251,469
Moran Foods, LLC		Beverage, Food & Tobacco	L+6.00% (7.24%)	1.24	%	12/5/2023		347,375		338,119		319,585
Paradigm Acquisition Corp.		Healthcare & Pharmaceuticals	L+5.00% (6.42%)	1.42	%	6/2/2022		122,188		120,735		122,798
Pre-Paid Legal Services, Inc		Consumer Services	L+5.25% (6.50%)	1.25	%	7/1/2019		320,191		319,563		323,092
Raley’s		Beverage, Food & Tobacco	L+5.25% (6.49%)	1.24	%	5/18/2022		288,431		288,431		291,676
Sahara Parent Inc		Business Services	L+5.00% (6.31%)	1.31	%	8/16/2024		350,000		346,532		343,875
SITEL Worldwide Corporation		Business Services	L+5.50% (6.81%)	1.31	%	9/20/2021		196,000		195,530		196,294
Strike, LLC		Energy: Oil & Gas	L+8.00% (9.33%)	1.33	%	11/30/2022		336,875		327,876		341,928
Travel Leaders Group, LLC		Hotel, Gaming & Leisure	L+4.50% (5.81%)	1.31	%	1/25/2024		348,252		346,677		353,478
TruGreen Limited Partnership		Consumer Services	L+4.00% (5.24%)	1.24	%	4/13/2023		346,500		342,323		351,264
Verdesian Life Sciences LLC		Wholesale Trade-Nondurable Goods	L+5.00% (6.31%)	1.31	%	7/1/2020		208,335		207,172		162,501
Wirepath LLC		Consumer Services	L+5.25% (6.56%)	1.31	%	8/5/2024		500,000		497,500		504,063
Total Senior Secured Loans—First Lien							$	7,698,817	$	7,600,385	$	7,621,047

Senior Secured Loans—Second Lien—20.70%
Flavors Holdings, Inc.		Beverage, Food & Tobacco	L+10.00% (11.33%)	1.33	%	10/7/2021		125,000		122,161		93,438
FullBeauty Brands Holding		High Tech Industries	L+9.00% (10.24%)	1.24	%	10/13/2023		250,000		218,743		114,688
GK Holdings, Inc.		Business Services	L+10.25% (11.55%)	1.33	%	1/21/2022		125,000		123,468		118,750
Inmar		Business Services	L+8.00% (9.27%)	1.27	%	5/1/2025		500,000		492,866		502,813
McAfee LLC		Business Services	L+8.50% (9.83%)	1.33	%	9/26/2025		500,000		492,500		502,293
Neustar, Inc.		High Tech Industries	L+8.00% (9.31%)	1.31	%	2/28/2025		750,000		738,862		761,250
NPC International, Inc.		Beverage, Food & Tobacco	L+7.50 (8.74%)	1.24	%	3/28/2025		500,000		497,896		508,438
Oxbow Carbon LLC		Metals & Mining	L+7.00 (8.24%)	1.24	%	1/19/2020		250,000		239,541		251,094
Rocket Software, Inc.		Business Services	L+9.50% (10.83%)	1.33	%	10/14/2024		500,000		491,229		501,875
Total Senior Secured Loans—Second Lien							$	3,500,000	$	3,417,266	$	3,354,639

			Nine months ended September 30, 2017
Non-controlled, Affiliated Investments	Fair Value at December 31, 2016		Gross Additions (Cost)*		Gross Reductions (Cost)**		Fair Value at September 30, 2017		Net Realized Gain (Loss)		Interest & Dividends Credited to Income
ACON IWP Investors I, L.L.C.	$	691,072	$	—	$	—	$	509,993	$	—	$	—
Javlin Capital, LLC, Convertible Note		646,901		19,488		—		—		—		19,488
Javlin Capital, LLC, C-2 Preferred Units		537,229		—		—		—		—		—
Total	$	1,875,202	$	19,488	$	—	$	509,993	$	—	$	19,488

			Year Ended December 31, 2016
Non-controlled, Affiliated Investments	Fair Value at December 31, 2015			Gross Additions (Cost)*		Gross Reductions (Cost)**		Fair Value at December 31, 2016		Net Realized Gain (Loss)		Interest & Dividends Credited to Income
ACON IWP Investors I, L.L.C.	$	738,266		$	—	$	—	$	691,072	$	—	$	—
Javlin Capital, LLC, Convertible Note		609,219			37,682		—		646,901		—		37,682
Javlin Capital, LLC, C-2 Preferred Units		750,000			—		—		537,229		—		—
Total	$	2,097,485		$	37,682	$	—	$	1,875,202	$	—	$	37,682



Non-controlled, Affiliated Investments	Number of Shares	Fair Value at June 30, 2019		Gross Additions (Cost)*		Gross Reductions (Cost)**		Unrealized Change in FMV		Net Realized Gain (Loss)		Fair Value at June 30, 2020		Interest & Dividends Credited to Income
ACON IWP Investors I, L.L.C.	472,357	$	570,816	$	—	$	—	$	216,172	—		$	786,988	$	—
Total		$	570,816	$	—	$	—	$	216,172	$	—	$	786,988	$	—

	Nine months ended September 30,
	2017					2016
	Shares		Amount			Shares		Amount
Gross proceeds from Offering		362,028.61	$	5,320,227			341,456.57	$	5,109,288
Reinvestment of Distributions		16,105.02		214,336			11,178.05		155,067
Commissions and Dealer Manager Fees		—		(502,640	)		—		(438,556	)
Net Proceeds to Company from Share Transactions		378,133.63	$	5,031,923			352,634.62	$	4,825,798



	Three Months Ended September 30, 2020		Three Months Ended September 30, 2019
	FLEX Class A Common Shares		FLEX Class A Common Shares
	Shares	Amount	Shares	Amount
Shares issued	27,815	$251,000	2,197	$25,000
Shares issued through reinvestment of distributions	22,753	189,344	19,932	213,293
Repurchase of common shares	(28,786)	(237,488)	—	—
Net increase from capital transactions	21,782	$202,856	22,129	$238,293

For the Three Months Ended	Repurchase Date	Shares Repurchased		Percentage of Shares Tendered That Were Repurchased			Repurchase Price Per Share		Aggregate Consideration for Repurchased Shares
Fiscal 2017
September 30, 2016	July 15, 2016		8,482.60		50	%	$	13.80	$	117,060
December 31, 2016	October 14, 2016		8,482.60		48	%	$	13.80	$	117,060
March 31, 2017	January 20, 2017		8,482.60		27	%	$	13.87	$	117,654
June 30, 2017	May 12, 2017		1,936.81		6	%	$	13.55	$	26,243
September 30, 2017	September 25, 2017		5,968.22		9	%	$	12.30	$	73,409
			16,387.63		12	%	$	13.26	$	217,306

			Three months ended September 30,				Nine months ended September 30,
Related Party	Source Agreement	Description	2017		2016		2017			2016
Triton Pacific Adviser, LLC	Investment Adviser Agreement	Base Management Fees	$	83,459	$	60,625	$	246,154		$	156,957
Triton Pacific Adviser, LLC	Investment Adviser Agreement	Capital Gains Incentive Fees⁽¹⁾	$	—	$	11,265	$	(334	)	$	31,609
TFA Associates, LLC	Administration Agreement	Administrative Services Expenses	$	70,495	$	78,840	$	213,473		$	242,332
Triton Pacific Securities, LLC	Dealer Manager Agreement	Dealer Manager Fees⁽²⁾	$	37,201	$	20,987	$	97,435		$	107,444

Net Asset Value	Annual Cash Retainer Fee	Board Meeting Fee	Annual Audit Committee Chairperson Fee	Annual Audit Committee Member Fee	Audit Committee Meeting Fee
$0 to $25 million	—	—	—	—	—
$25 million to $75 million	$20,000	$1,000	$10,000	$2,500	$500
over $75 million	$30,000	$1,000	$12,500	$2,500	$500

Quarter Ended	Amount of Expense Payment Obligation	Amount of Offering Cost Payment Obligation	Operating Expense Ratio as of the Date Expense Payment Obligation Incurred⁽¹⁾	Annualized Distribution Rate as of the Date Expense Payment Obligation Incurred⁽²⁾	Eligible for Reimbursement Through
September 30, 2012	$21,826		432.69%	—	September 30, 2015
December 31, 2012	$26,111		531.09%	—	December 31, 2015
March 31, 2013	$30,819		N/A	—	March 31, 2016
June 30, 2013	$59,062		N/A	—	June 30, 2016
September 30, 2013	$65,161		N/A	—	September 30, 2016
December 31, 2013	$91,378		455.09%	—	December 31, 2016
March 31, 2014	$68,293		148.96%	—	March 31, 2017
June 30, 2014	$70,027	$898,518	23.17%	—	June 30, 2017
September 30, 2014	$92,143	$71,060	20.39%	—	September 30, 2017
December 31, 2014	$115,777	$90,860	11.15%	—	December 31, 2017
March 31, 2015	$134,301	$106,217	13.75%	2.01%	March 31, 2018
June 30, 2015	$166,549	$167,113	14.10%	3.20%	June 30, 2018
September 30, 2015	$147,747	$240,848	10.45%	3.20%	September 30, 2018
December 31, 2015	$136,401	$280,376	7.41%	3.60%	December 31, 2018
March 31, 2016	$157,996	$232,895	6.00%	3.52%	March 31, 2019
June 30, 2016	$206,933	$285,878	4.95%	3.52%	June 30, 2019
September 30, 2016	$201,573	$223,020	4.52%	3.13%	September 30, 2019
December 31, 2016	$104,561	$168,876	4.45%	3.11%	December 31, 2019
March 31, 2017	$80,847	$252,875	4.21%	3.19%	March 31, 2020
June 30, 2017	$0	$176,963	3.98%	3.18%	June 30, 2020
September 30, 2017	$0	$119,188	4.19%	3.00%	September 30, 2020

	Distribution
For the Nine Months Ended	Per Share		Amount
Fiscal 2017
January 27, 2017	$	0.04000		39,407
February 24, 2017	$	0.04000		41,323
March 23, 2017	$	0.04000		42,513
April 27, 2017	$	0.04000		44,526
May 25, 2017	$	0.04000		46,364
June 23, 2017	$	0.04000		47,861
July 21, 2017	$	0.04000		48,678
August 29, 2017	$	0.03417		44,767
September 28, 2017	$	0.03417		45,500

Fiscal 2016
January 22, 2016	$	0.04500	$	25,244
February 16, 2016	$	0.04500	$	26,477
March 23, 2016	$	0.04500	$	30,271
April 21, 2016	$	0.04500	$	32,832
May 19, 2016	$	0.04500	$	34,950
June 23, 2016	$	0.04500	$	36,206
July 21, 2016	$	0.04000	$	32,318
August 25, 2016	$	0.04000	$	33,293
September 22, 2016	$	0.04000	$	33,877

	Nine months ended September 30, 2017 (Unaudited)						Year Ended December 31, 2016
		Investments at Amortized Cost⁽¹⁾		Investments at Fair Value	Fair Value Percentage of Total Portfolio			Investments at Amortized Cost⁽¹⁾		Investments at Fair Value	Fair Value Percentage of Total Portfolio
Senior Secured Loans—First Lien	$	7,600,385	$	7,621,047	67	%	$	6,680,615	$	6,761,313	63	%
Senior Secured Loans—Second Lien		3,417,266		3,354,639	29	%		2,024,991		1,967,658	19	%
Subordinated Debt		666,389		—	0	%		646,901		646,901	6	%
Equity/Other		1,250,000		509,993	4	%		1,250,000		1,228,301	12	%
Total	$	12,934,040	$	11,485,679	100	%	$	10,602,507	$	10,604,173	100	%

	September 30, 2017 (Unaudited)					December 31, 2016
Industry Classification	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
Automotive Repair, Services, and Parking	$	—		0.0	%	$	122,459		1.2	%
Beverage, Food & Tobacco		1,658,531		14.4	%		1,162,891		11.0	%
Business Services		4,365,138		38.0	%		2,793,526		26.3	%
Consumer Services		1,178,419		10.3	%		955,659		9.0	%
Energy: Oil & Gas		341,928		3.0	%		346,500		3.3	%
Healthcare & Pharmaceuticals		949,567		8.3	%		1,403,008		13.2	%
High Tech Industries		875,938		7.6	%		1,016,921		9.6	%
Hotel, Gaming & Leisure		353,478		3.1	%		—		0.0	%
Media: Diversified and Production		345,471		3.0	%		347,375		3.3	%
Metals & Mining		754,832		6.6	%		245,625		2.3	%
Paper and Allied Products		—		0.0	%		115,294		1.0	%
Retail		—		0.0	%		712,500		6.7	%
Specialty Finance		—		0.0	%		1,184,130		11.2	%
Telecommunications		499,876		4.4	%		—		0.0	%
Transportation: Cargo		—		0.0	%		—		0.0	%
Wholesale Trade-Nondurable Goods		162,501		1.3	%		198,285		1.9	%
Total	$	11,485,679		100.0	%	$	10,604,173		100.00	%

Valuation Inputs	Nine months ended September 30, 2017 (Unaudited)		Year ended December 31, 2016
Level 1—Price quotations in active markets	$	—	$	—
Level 2—Significant other observable inputs		—		—
Level 3—Significant unobservable inputs		11,485,679		10,604,173
Total	$	11,485,679	$	10,604,173

	For the nine months ended September 30, 2017
	Senior Secured Loans - First Lien			Senior Secured Loans - Second Lien			Subordinated Convertible Debt			Equity/Other			Total
Fair value at beginning of period	$	6,761,313		$	1,967,658		$	646,901		$	1,228,301		$	10,604,173
Accretion of discount (amortization of premium)		16,507			7,411			—			—			23,918
Net realized gain (loss)		50,020			41,114			—			—			91,134
Net change in unrealized appreciation (depreciation)		(60,034	)		(5,295	)		(666,389	)		(718,307	)		(1,450,025	)
Purchases		3,897,250			2,221,250			—			—			6,118,500
Paid-in-kind interest		—			—			19,488			—			19,488
Sales and redemptions		(3,044,009	)		(877,500	)		—			—			(3,921,509	)
Net transfers in or out of Level 3		—			—			—			—			—
Fair value at end of period	$	7,621,047		$	3,354,638		$	—		$	509,994		$	11,485,679

The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date	$	(60,034	)	$	(5,295	)	$	(666,389	)	$	(718,307	)	$	(1,450,025	)

	For the year ended December 31, 2016
	Senior Secured Loans - First Lien			Senior Secured Loans - Second Lien			Subordinated Convertible Debt		Equity/Other			Total
Fair value at beginning of period	$	2,389,377		$	1,041,875		$	609,219	$	1,488,266		$	5,528,737
Accretion of discount (amortization of premium)		12,124			6,512			—		—			18,636
Net realized gain (loss)		19,433			298			—		—			19,731
Net change in unrealized appreciation (depreciation)		117,410			(33,527	)		—		(259,965	)		(176,082	)
Purchases		5,083,375			1,202,500			—		—			6,285,875
Paid-in-kind interest		—			—			37,682		—			37,682
Sales and redemptions		(860,406	)		(250,000	)		—		—			(1,110,406	)
Net transfers in or out of Level 3		—			—			—		—			—
Fair value at end of period	$	6,761,313		$	1,967,658		$	646,901	$	1,228,301		$	10,604,173

The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date	$	117,410		$	(33,527	)	$	—	$	(259,965	)	$	(176,082	)

Asset Category	Fair Value		Primary Valuation Technique	Unobservable Inputs	Range	Weighted Average
Senior Secured First Lien Debt		7,621,047	Market quotes	Indicative dealer quotes	76.50 - 102.00	99.17
Senior Secured Second Lien Debt	3,354,639		Market quotes	Indicative dealer quotes	44.50 - 102.13	98.11
Subordinated Debt		—	Distribution waterfall/ liquidation priorities	N/A	N/A	N/A
Equity/Other		—	Distribution waterfall/ liquidation priorities	N/A	N/A	N/A
Equity/Other		509,993	Market comparables	EBITDA multiples (x)	7.15x - 9.15x	8.15x
Total	$	11,485,679

	Nine Months Ended September 30, 2017 (Unaudited)			Year Ended December 31, 2016
Per Share Data:
Net asset value, beginning of period	$	13.55		$	13.75
Results of operations⁽¹⁾
Net investment income (loss)		(0.07	)		0.48
Net realized and unrealized appreciation (depreciation) on investments⁽²⁾		(1.09	)		(0.14	)
Net increase (decrease) in net assets resulting from operations		(1.16	)		0.34
Stockholder distributions⁽³⁾
Distributions from net investment income		(0.31	)		(0.51	)
Distributions from net realized gain on investments		(0.04	)		—
Net decrease in net assets resulting from stockholder distributions		(0.35	)		(0.51	)
Capital share transactions
Issuance of common stock⁽⁴⁾		0.07			(0.03	)
Offering costs⁽¹⁾		—			—
Net increase (decrease) in net assets resulting from capital share transactions		0.07			(0.03	)
Net asset value, end of period	$	12.11		$	13.55
Shares outstanding, end of period		1,338,155			976,406
Total return⁽⁵⁾		-8.1	%		2.2	%
Ratio/Supplemental Data:
Net assets, end of period	$	16,206,374		$	13,228,702
Ratio of net investment income to average net assets		-0.5	%		3.6	%
Ratio of total operating expenses to average net assets		5.1	%		7.2	%
Ratio of expenses reimbursed by sponsor to average net assets		0.5	%		6.5	%
Ratio of expense recoupment payable to sponsor to average net assets		0.0	%		0.0	%
Ratio of capital gain incentive fee to average net assets		0.00	%		-0.34	%
Ratio of net operating expenses to average net assets		4.6	%		0.7	%
Portfolio turnover⁽⁶⁾		26.6	%		10.8	%


Net Investment Activity	Nine months ended September 30, 2017			Year ended December 31, 2016
Purchases	$	6,118,500		$	6,285,875
Sales and Redemptions		(3,921,509	)		(1,110,406	)
Net Portfolio Activity	$	2,196,991		$	5,175,469

	September 30, 2017					December 31, 2016
Investment Rating	Fair Value		Percentage			Fair Value		Percentage
1	$	—		0.0	%	$	—		0.0	%
2		489,269		4.5	%		—		0.0	%
3		3,722,619		33.9	%		2,690,027		30.8	%
4		2,382,414		21.7	%		2,689,677		30.8	%
5		4,010,757		36.5	%		3,010,103		34.5	%
6		370,627		3.4	%		339,164		3.9	%
7		—		0.0	%		—		0.0	%
8		—		0.0	%		—		0.0	%
	$	10,975,686		100.0	%	$	8,728,971		100.0	%

	Three months ended September 30, 2017		Three months ended September 30, 2016		Nine months ended September 30, 2017		Nine months ended September 30, 2016
Licenses and permits	$	—	$	—	$	413	$	—
Outside Services		9,753		—		9,753		—
Printing fees		2,408		1,950		8,560		6,137
Travel expenses		—		6,150		1,056		6,150
Other		934		1,172		3,386		2,902
Total	$	13,095	$	9,272	$	23,168	$	15,189

					Operating Expense
					Ratio as of the		Annualized Distribution
					Date Expense		Rate as of the Date		Eligible for
	Amount of Expense		Amount of Offering Cost		Payment Obligation		Expense Payment		Reimbursement
Quarter Ended	Payment Obligation		Payment Obligation		Incurred^{( 1)}		Obligation Incurred^{( 2)}		Through
September 30, 2012		$21,826				432.69%		—	September 30, 2015
December 31, 2012		$26,111				531.09%		—	December 31, 2015
March 31, 2013		$30,819				N/A		—	March 31, 2016
June 30, 2013		$59,062				N/A		—	June 30, 2016
September 30, 2013		$65,161				N/A		—	September 30, 2016
December 31, 2013		$91,378				455.09%		—	December 31, 2016
March 31, 2014		$68,293				148.96%		—	March 31, 2017
June 30, 2014		$70,027		$898,518		23.17%		—	June 30, 2017
September 30, 2014		$92,143		$71,060		20.39%		—	September 30, 2017
December 31, 2014		$115,777		$90,860		11.15%		—	December 31, 2017
March 31, 2015		$134,301		$106,217		13.75%		2.01%	March 31, 2018
June 30, 2015		$166,549		$167,113		14.10%		3.20%	June 30, 2018
September 30, 2015		$147,747		$240,848		10.45%		3.20%	September 30, 2018
December 31, 2015		$136,401		$280,376		7.41%		3.60%	December 31, 2018
March 31, 2016		$157,996		$232,895		6.00%		3.52%	March 31, 2019
June 30, 2016		$206,933		$285,878		4.95%		3.52%	June 30, 2019
September 30, 2016		$201,573		$223,020		4.52%		3.13%	September 30, 2019
December 31, 2016		$104,561		$168,876		4.45%		3.11%	December 31, 2019
March 31, 2017		$80,847		$252,875		4.21%		3.19%	March 31, 2020
June 30, 2017		$0		$176,963		3.98%		3.18%	June 30, 2020
September 30, 2017		$0		$119,188		4.19%		3.00%	September 30, 2020

Title of each class

Trading Symbol(s)

Name of each exchange on which registered