• Our ability to negotiate other financing and/or strategic alternatives, including possible debt or equity financing, acquisition or disposition of assets, and other strategic transactions;

• Our ability to maintain our status as a RIC under the Code;

• Our ability to continue as a going concern;

• Our future operating results;

• Our business prospects and the prospects of our portfolio companies;

• The ability of our portfolio companies to achieve their objectives;

• Our expected financings and investments;

• Future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies and RIC's;

• The adequacy of our cash resources and working capital; and

• The timing of cash flows, if any, from the operations of our portfolio companies.

In addition, words such as "anticipate," "believe," "expect" and "intend" indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in "Risk Factors" in this quarterly report on Form 10-Q, our quarterly report on Form 10-Q for the quarter ended March 31, 2009 and in our 2008 annual report on Form 10-K.
We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q, and we assume no obligation to update any such forward-looking statements. 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 through reports that we may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

the amount of our advances outstanding under the facility exceeding the maximum availability under the facility for more than three consecutive business days. The maximum availability under the facility is determined by, among other things, the fair market value of all eligible loans serving as collateral under the facility. Because the fair market value of certain eligible loans decreased at December 31, 2008, our advances outstanding under the facility exceeded the maximum availability under the facility. This determination was made in connection with the delivery of a borrowing base report to the facility lenders on March 31, 2009. As a result of the occurrence of the termination event under the facility, we can no longer make additional advances under the facility. Also, the interest rate payable under the Amended Securitization Facility increased from the commercial paper rate plus 1.75% to the prime rate plus 3.75%. In addition, the terms of the facility require that from April 3, 2009 all principal, interest and fees collected from the debt investments secured by the facility must be used to pay down amounts outstanding under the facility within 24 months following the date of the termination event. Substantially all of our debt investments are secured under our Amended Securitization Facility. The facility also permits the lenders, upon notice to us, to accelerate amounts outstanding under the facility and exercise other rights and remedies provided by the facility, including the right to sell the collateral under the facility. To date, we have not received any such notice from the lenders. At June 30, 2009, the interest rate under the Amended Securitization Facility was 7.0%.
Moreover, our independent registered public accounting firm issued an opinion on our December 31, 2008 consolidated financial statements that states that the consolidated financial statements were prepared assuming we will continue as a going concern and further states that the uncertainty regarding the renewal of our liquidity facility raises substantial doubt about our ability to continue as a going concern. At the time our independent registered public accounting firm issued this opinion, we were negotiating the renewal of the liquidity facility, which matured on April 11, 2009, that supported our Amended Securitization Facility with certain liquidity banks. In the event that the liquidity banks did not renew the liquidity facility, the terms of the Amended Securitization Facility would require, among other things, that all principal and interest collected from the debt investments secured by the facility be used to pay down amounts outstanding under the facility by April 2011. Subsequent to the issuance of this opinion by our independent registered public accounting firm, the liquidity banks determined not to renew the liquidity facility supporting our Amended Securitization Facility.
We are in discussions with the Amended Securitization Facility lenders to seek relief from certain terms of the facility, including the requirement under the facility that we use all principal, interest and fees collected from the debt investments secured by the facility to pay down amounts outstanding under the facility by April 3, 2011. However, based on discussions with the Lenders to date, we are not optimistic that the lenders will agree to provide us any relief from any terms of the facility. Moreover, even if we are successful in seeking relief from the lenders of the facility, our ability to operate our business in the manner in which we have historically operated will be constrained until our ability to access the debt and equity capital markets improves. As a result, we are also currently evaluating other financing and/or strategic alternatives, including possible sale of our company, debt or equity financing, disposition of assets, and other strategic transactions. For a discussion of a strategic transaction we entered into with Prospect Capital Corporation on August 3, 2009, see "Management's Discussion and Analysis and Results of Operations - Recent Developments."
Portfolio Composition Our primary business is lending to and investing in small- to mid-sized businesses through investments in senior secured loans, junior secured loans, subordinated debt investments and equity-based investments, including warrants. The fair value of our portfolio was $283.9 million and $322.4 million at June 30, 2009 and December 31, 2008, respectively.
Total portfolio investment activity as of and for the six months ended June 30, 2009 and the year ended December 31, 2008 was as follows:

                                                                  June 30, 2009          December 31, 2008
Beginning portfolio at fair value                                 $  322,370,748        $       384,725,753
Investments in debt securities                                        10,273,276                 79,096,786
Investments in equity securities                                             188                  3,245,937
Investment repayments                                                (21,116,671 )              (95,018,988 )
Increase in payment-in-kind interest/dividends                         2,218,782                  5,452,124
Sale of investments                                                   (1,377,011 )              (15,267,401 )
Change in unearned revenue                                               443,572                   (129,458 )
Realized loss on investments                                         (12,013,473 )                        -
Change in fair value of investments                                  (16,870,174 )              (39,992,921 )

Ending portfolio at fair value                                    $  283,929,237        $       322,370,748

As of June 30, 2009 and December 31, 2008, the composition of our portfolio at fair value was as follows:

                                                           June 30, 2009                                 December 31, 2008
                                               Investments at          Percentage of           Investments at          Percentage of
                                                 Fair Value           Total Portfolio            Fair Value           Total Portfolio
Senior secured revolving lines of credit      $     14,252,865                     5.0 %      $     10,266,191                     3.2 %
Senior secured term loans                          123,459,342                    43.5             146,372,476                    45.4
Junior secured term loans                           50,861,771                    17.9              58,076,196                    18.0
Senior subordinated debt                            85,658,932                    30.2              93,365,112                    29.0
Investments in equity securities                     9,696,327                     3.4              14,290,773                     4.4


Totals                                        $    283,929,237                   100.0 %      $    322,370,748                   100.0 %

For the six months ended June 30, 2009 and year ended December 31, 2008, the weighted average yield on all of our outstanding debt investments was approximately 10.7% and 12.1%, respectively. The weighted average balance of our debt investment portfolio during the six months ended June 30, 2009 was $300.3 million, down from $333.2 million during the fourth quarter of 2008. Yields are computed using actual interest income earned for the year (annualized for the six months ended June 30, 2009), including amortization of loan fees and original issue discount, divided by the weighted average fair value of debt investments. As of June 30, 2009 and December 31, 2008, $109.8 million and $123.5 million, respectively, of our portfolio investments at fair value were at fixed interest rates, which represented approximately 39% and 38%, respectively, of our total portfolio of investments at fair value. We generally structure our subordinated debt investments at fixed rates while many of our senior secured and junior secured loans are, and will be, at variable rates.
At June 30, 2009 and December 31, 2008, our equity investments consisted of common and preferred stock, LLC membership interests and warrants to acquire equity interests in certain of our portfolio companies. Warrants to acquire equity interests allow us to participate in the potential appreciation in the value of the portfolio company, while minimizing the amount of upfront cost to us.
The composition of our investment portfolio by industry sector, using Moody's Industry Classifications, excluding unearned income, as of June 30, 2009 and December 31, 2008 at cost and fair value was as follows:

                                                     June 30, 2009                                                     December 31, 2008
                                 Cost             % (1)         Fair Value          % (1)            Cost             % (1)         Fair Value          % (1)
Machinery                    $  51,631,722          15.0 %     $  36,171,707          12.7 %     $  51,384,711          14.0 %     $  39,527,874          12.3 %
Health Care, Education &
Childcare                       39,025,805          11.3          37,864,405          13.3          39,749,005          10.9          39,501,102          12.2
Personal & Nondurable
Consumer Products               38,546,025          11.2          36,274,356          12.8          39,609,196          10.8          39,247,796          12.2
Automobile                      30,715,635           8.9          23,050,225           8.1          33,276,374           9.1          26,487,272           8.2
Textiles & Leather              28,954,845           8.4          27,780,125           9.8          29,557,681           8.1          29,368,566           9.1
Electronics                     27,233,211           7.9          27,389,835           9.6          31,033,364           8.5          30,033,495           9.3
Printing & Publishing           26,352,526           7.6          11,324,964           4.0          26,302,411           7.2          18,159,998           5.6
Metals & Minerals               23,089,697           6.7          22,746,197           8.0          23,049,480           6.3          22,453,909           7.0
Mining, Steel, Iron &
Nonprecious Metals              17,921,135           5.2          11,323,286           4.0          18,092,545           4.9          17,245,764           5.3
Retail Stores                   11,579,947           3.4          11,484,713           4.1          10,978,984           3.0          10,872,284           3.4
Housewares & Durable
Consumer Products               11,106,570           3.2           7,292,672           2.6          11,005,810           3.0           9,333,052           2.9
Ecological                       9,929,859           2.9           9,588,359           3.4           8,556,102           2.3           8,164,902           2.5
Grocery                          8,393,329           2.4           8,541,001           3.0           8,156,189           2.2           8,278,569           2.6
Chemicals, Plastic &
Rubber                           5,360,932           1.6           3,781,610           1.3          16,659,410           4.6           9,347,006           2.9
Insurance                        5,012,842           1.5           4,699,639           1.6           5,000,000           1.4           4,048,200           1.3
Buildings & Real Estate          4,492,943           1.3           4,492,943           1.6           4,613,182           1.3           4,613,182           1.4
Personal, Food &
Miscellaneous Services           3,000,000           0.9                   -             -           3,000,000           0.8           1,050,000           0.3
Diversified/Conglomerate
Service                          1,570,736           0.5                   -             -           1,570,736           0.4             623,500           0.2
Aerospace & Defense                463,168           0.1             123,200           0.1             463,168           0.1             173,600           0.1
Oil & Gas                                -             -                   -             -           3,840,677           1.1           3,840,677           1.2


Total                        $ 344,380,927         100.0 %     $ 283,929,237         100.0 %     $ 365,899,025         100.0 %     $ 322,370,748         100.0 %

(1) Represents percentage of total portfolio.

At June 30, 2009 and December 31, 2008, we did not have any investment in excess of 10% of the total investment portfolio at fair value. Investment income, consisting of interest, dividends and fees can fluctuate dramatically upon repayment of an investment or sale of an equity interest. Revenue recognition in any given period can be highly concentrated among several portfolio companies. During the three and six months ended June 30, 2009 and 2008, we did not record investment income from any portfolio company in excess of 10% of total investment income.

                                June 30, 2009                           December 31, 2008
                     Investments at       Percentage of        Investments at       Percentage of
Investment Rating      Fair Value        Total Portfolio         Fair Value        Total Portfolio
1                   $     95,779,317                 34.9 %   $     82,179,735                 26.7 %
2                        134,852,717                 49.2          184,507,897                 59.9
3                         30,469,979                 11.1           21,275,475                  6.9
4                          4,890,139                  1.8            8,477,320                  2.7
5                          8,240,758                  3.0           11,639,548                  3.8


Totals              $    274,232,910                100.0 %   $    308,079,975                100.0 %

At June 30, 2009 and December 31, 2008, we had loans and equity investments from six and three, respectively, of our portfolio companies on non-accrual status. See "-Critical Accounting Policies - Interest and Dividend Income Recognition" for a discussion of when we place debt investments on non-accrual status.
In the event that the United States economy continues in a prolonged recession, it is possible that the financial results of small- to mid-sized companies, similar to those in which we invest, could experience further deterioration, which could ultimately lead to difficulty in meeting debt service requirements and an increase in defaults. We can provide no assurance that the performance of certain of our portfolio companies will not be negatively impacted by these economic or other conditions which could have a negative impact on our future results.
Results of Operations
The principal measure of our financial performance is net income (loss) which includes net investment income, net realized gain (loss) and net unrealized appreciation (depreciation). Net investment income is the difference between our income from interest, dividends, fees, and other investment income and our operating expenses. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their stated cost. Net unrealized appreciation (depreciation) on interest rate swaps is the net change in the fair value of our outstanding swap agreements. Net unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio.
Comparison for the three months ended June 30, 2009 and 2008 Total Investment Income
Total investment income includes interest and dividend income on our investments, fee income and other investment income. Fee income consists principally of loan and arrangement fees, annual administrative fees, unused fees, prepayment fees, amendment fees, equity structuring fees and waiver fees. Other investment income consists primarily of the accelerated recognition of deferred

financing fees received from our portfolio companies on the repayment of the outstanding investment, the sale of the investment or reduction of available credit.
Total investment income for the three months ended June 30, 2009 and 2008, was $8.1 million and $10.7 million, respectively. For the three months ended June 30, 2009, this amount consisted of interest income of $12,000 from cash and cash equivalents, $7.8 million of interest and dividend income from portfolio investments (which included $1.1 million in payment-in-kind or PIK interest and dividends) and $288,000 of fee income. For the three months ended June 30, 2008, this amount consisted of interest income of $30,000 from cash and cash equivalents, $10.1 million of interest and dividend income from portfolio investments (which included $1.4 million in payment-in-kind or PIK interest and dividends), $142,000 in fee income and $380,000 in other investment income.
The decrease in our total investment income for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008 was primarily attributable to a decrease in the weighted average fair value balance outstanding of our interest-bearing investment portfolio during the quarter ended June 30, 2009. The primary reason behind the decrease in total investment income was a decrease in interest income due to the decrease in the weighted average fair value balance of our investment portfolio, and a decrease in the weighted average yield of our investments. During the three months ended June 30, 2009, the weighted average fair value balance outstanding of our interest-bearing investment portfolio was approximately $292.4 million as compared to approximately $337.3 million during the three months ended June 30, 2008. The weighted average yield on our investments during the three months ended June 30, 2009 decreased as a result of an increase in the number of loans on non-accrual status and an overall decrease in market interest rates.
Expenses
Expenses include compensation expense, interest on our outstanding indebtedness, professional fees, and general and administrative expenses.
Expenses for the three months ended June 30, 2009 and 2008, were $5.6 million and $4.2 million, respectively. Expenses increased for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008 by approximately $1.4 million, primarily as a result of higher interest expense of $852,000, higher professional fees of $610,000 and higher general and administrative expenses of $126,000, partially offset by lower compensation expense which decreased by $268,000. The lower compensation expense was principally attributable to the elimination of bonus accruals given the impact of the current market and economic environment on our financial performance, reduction of employee headcount during the fourth quarter of 2008 and the first quarter of 2009, partially offset by an increase in base salary for three of our executive officers during the first quarter of 2009. The increase in interest expense was attributable to an increase in interest rates during the second quarter of 2009 as a result of the April 3, 2009 termination event which occurred under the Amended Securitization Facility. Our weighted average borrowings outstanding were approximately $141.5 million during the three months ended June 30, 2009, as compared to $139.6 million during the three months ended June 30, 2008. Such borrowings were used primarily to fund investments. The increase in professional fees expense is primarily due to additional legal fees we incurred in 2009 relating to the termination event under the Amended Securitization Facility and our evaluation of strategic alternatives for the company. The increase in general and administrative expenses is primarily the result of additional costs incurred in connection with the evaluation of strategic alternatives, including additional fees paid to our directors in connection with board meetings relating to the termination event under the Amended Securitization Facility and the evaluation of strategic alternatives for us.
Realized Gain (Loss) on Disposition of Investments Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their stated cost. During the three months ended June 30, 2009, we realized a loss of $413,000 on investments principally from the sale of one syndicated loan investment. During the three months ended June 30, 2008, we realized a loss of $344,000 on investments principally from the cancellation of warrants in which we had previously recorded unrealized depreciation on the entire warrant balance.
Net Change in Unrealized Appreciation or Depreciation on Investments Net unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. During the three months ended June 30, 2009 and 2008, we recorded net unrealized depreciation of $12.7 million and $3.4 million, respectively, on our investments. For the three months ended June 30, 2009, our net unrealized depreciation consisted of the following:
approximately $12.9 million of unrealized depreciation resulted from a decline in cash flows of our portfolio companies; approximately $1.5 million of unrealized depreciation which resulted from changes in market multiples and interest rates; offset by approximately $1.7 million of unrealized appreciation resulted from quoted market prices on our syndicated loan portfolio. For the three months ended June 30, 2008, our net unrealized depreciation consisted of the following: approximately $217,000 of unrealized depreciation resulted from the decrease in quoted market prices on our syndicated loan portfolio as a result of the disruption in the credit markets for broadly

syndicated loans; approximately $3.6 million resulted from a decline in the financial performance of our portfolio companies; offset by approximately $452,000 of unrealized appreciation which resulted from changes in market multiples and interest rates.
Net Unrealized Appreciation or Depreciation on Interest Rate Swaps Net unrealized appreciation (depreciation) on interest rate swaps represents the change in the value of the swap agreements. For the three months ended . . .