Edgar Filing: MVC CAPITAL, INC.

e10vq

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2008


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

Commission File Number 814-00201

MVC Capital, Inc.

(Exact name of the registrant as specified in its charter)


DELAWARE (State or other jurisdiction of incorporation or organization)		94-3346760 (I.R.S. Employer Identification No.)


287 Bowman Avenue 2nd Floor Purchase, New York (Address of principal executive offices)		10577 (Zip Code)

Registrant’s telephone number, including area code: (914) 701-0310

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

There were 24,297,087 shares of the registrant’s common stock, $.01 par value, outstanding as of March 11, 2008.

MVC Capital, Inc.
(A Delaware Corporation)
Index


		Page
Part I. Consolidated Financial Information

Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - January 31, 2008 and October 31, 2007		3
Consolidated Statements of Operations - For the Period November 1, 2007 to January 31, 2008 and - For the Period November 1, 2006 to January 31, 2007		4
Consolidated Statements of Cash Flows - For the Period November 1, 2007 to January 31, 2008 and - For the Period November 1, 2006 to January 31, 2007		5
Consolidated Statements of Changes in Net Assets - For the Period November 1, 2007 to January 31, 2008 - For the Period November 1, 2006 to January 31, 2007 and - For the Year ended October 31, 2007		6
Consolidated Selected Per Share Data and Ratios - For the Period November 1, 2007 to January 31, 2008 - For the Period November 1, 2006 to January 31, 2007 and - For the Year ended October 31, 2007		7
Consolidated Schedule of Investments - January 31, 2008 - October 31, 2007		8
Notes to Consolidated Financial Statements		12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25

Item 3. Quantitative and Qualitative Disclosures about Market Risk		53

Item 4. Controls and Procedures		59

Part II. Other Information		60

SIGNATURE		61

Exhibits		62
Rule 13a-14(a) Certifications
Section 1350 Certification

Part I. Consolidated Financial Information

Item 1. Consolidated Financial Statements

CONSOLIDATED FINANCIAL STATEMENTS

MVC Capital, Inc.
Consolidated Balance Sheets


	January 31,			October 31,
	2008			2007
	(Unaudited)
ASSETS
Assets
Cash and cash equivalents	$	101,429,712		$	84,727,933
Investments at fair value (cost $394,709,679 and $393,428,353)
Non-control/Non-affiliated investments (cost $121,420,452 and $119,646,416)		93,962,814			85,543,666
Affiliate investments (cost $99,661,021 and $116,118,374)		116,613,188			127,959,158
Control investments (cost $173,628,206 and 157,663,563)		186,682,057			165,664,710

Total investments at fair value		397,258,059			379,167,534
Dividends, interest and fees receivable		2,937,363			3,105,100
Prepaid expenses		2,232,434			2,412,827
Prepaid taxes		20,182			228,159
Deferred tax		982,889			803,283
Deposits		—			25,156
Other assets		12,541			20,993


Total assets	$	504,873,180		$	470,490,985


LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities
Revolving credit facility	$	50,000,000		$	30,000,000
Term loan		50,000,000			50,000,000
Provision for incentive compensation (Note 9)		14,028,732			17,875,496
Management fee payable		2,017,512			1,929,258
Other accrued expenses and liabilities		899,553			977,953
Professional fees		357,139			558,091
Consulting fees		122,055			89,452
Listing fees		6,540			—
Directors’ fees		(37,380	)		(36,034	)


Total liabilities		117,394,151			101,394,216


Shareholders’ equity
Common stock, $0.01 par value; 150,000,000 shares authorized; 24,297,087 and 24,265,336 shares outstanding, respectively		283,044			283,044
Additional paid-in-capital		432,033,595			431,814,990
Accumulated earnings		27,723,135			24,375,844
Dividends paid to stockholders		(36,678,373	)		(33,764,634	)
Accumulated net realized loss		(5,627,290	)		(6,283,708	)
Net unrealized appreciation (depreciation)		2,548,380			(14,260,819	)
Treasury stock, at cost, 4,007,361 and 4,039,112 shares held, respectively		(32,803,462	)		(33,067,948	)


Total shareholders’ equity		387,479,029			369,096,769


Total liabilities and shareholders’ equity	$	504,873,180		$	470,490,985


Net asset value per share	$	15.95		$	15.21

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

MVC Capital, Inc.
Consolidated Statements of Operations
(Unaudited)


	For the Quarter Ended			For the Quarter Ended
	January 31, 2008			January 31, 2007
Operating Income:
Dividend income
Affiliate investments	$	843,271		$	212,437


Total dividend income		843,271			212,437


Interest income
Non-control/Non-affiliated investments		3,001,706			2,417,346
Affiliate investments		1,507,984			991,125
Control investments		2,028,847			1,107,004


Total interest income		6,538,537			4,515,475

Fee income
Non-control/Non-affiliated investments		442,050			282,723
Affiliate investments		208,160			117,572
Control investments		662,013			256,556


Total fee income		1,312,223			656,851


Other income		201,917			24,472


Total operating income		8,895,948			5,409,235


Operating Expenses:
Management fee		2,017,512			1,634,644
Incentive compensation (Note 9)		1,656,565			3,525,967
Interest and other borrowing costs		1,171,196			1,128,416
Legal fees		135,000			158,000
Other expenses		118,936			116,503
Insurance		96,000			118,500
Audit fees		91,500			84,000
Administration		80,158			57,362
Directors fees		60,000			60,000
Consulting fees		47,000			31,500
Printing and postage		31,544			24,300
Public relations fees		21,600			19,650


Total operating expenses		5,527,011			6,958,842


Net operating income (loss) before taxes		3,368,937			(1,549,607	)


Tax (Benefit) Expenses:
Deferred tax (benefit) expense		(179,606	)		19,753
Current tax expense		201,252			—


Total tax expense		21,646			19,753


Net operating income (loss)		3,347,291			(1,569,360	)


Net Realized and Unrealized Gain on Investments:

Net realized gain on investments
Non-control/Non-affiliated investments		1,093			3,968
Affiliate investments		595,000			—
Foreign currency		60,325			—


Total net realized gain on investments		656,418			3,968

Net change in unrealized appreciation on investments		16,809,199			20,642,228


Net realized and unrealized gain on investments		17,465,617			20,646,196


Net increase in net assets resulting from operations	$	20,812,908		$	19,076,836


Net increase in net assets per share resulting from operations	$	0.86		$	1.00


Dividends declared per share	$	0.12		$	0.18

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

MVC Capital, Inc.
Consolidated Statements of Cash Flows
(Unaudited)


	For the Quarter Ended			For the Quarter Ended
	January 31, 2008			January 31, 2007
Cash flows from Operating Activities:
Net increase in net assets resulting from operations	$	20,812,908		$	19,076,836
Adjustments to reconcile net increase in net assets resulting from operations to net cash used by operating activities:
Realized gain		(656,418	)		(3,968	)
Net change in unrealized appreciation		(16,809,199	)		(20,642,228	)
Amortization of discounts and fees		(23,064	)		(34,729	)
Increase in accrued payment-in-kind dividends and interest		(1,396,837	)		(762,782	)
Increase in allocation of flow through income		(51,963	)		(14,022	)
Changes in assets and liabilities:
Dividends, interest and fees receivable		167,737			(113,074	)
Prepaid expenses		180,393			(286,293	)
Prepaid taxes		207,977			(28,630	)
Deferred tax		(179,606	)		19,753
Deposits		25,156			(8,308,550	)
Other assets		8,452			8,451
Incentive compensation (Note 9)		(3,846,764	)		3,415,749
Other Liabilities		(153,301	)		59,989
Purchases of equity investments		(27,716,525	)		(2,335,614	)
Purchases of debt instruments		(49,117,165	)		(23,655,069	)
Proceeds from equity investments		4,495,317			—
Proceeds from debt instruments		73,185,329			10,112,950


Net cash used by operating activities		(867,573	)		(23,491,231	)


Cash flows from Financing Activities:
Distributions to shareholders paid		(2,430,648	)		(3,359,814	)
Net borrowings under revolving credit facility		20,000,000			—


Net cash provided (used) by financing activities		17,569,352			(3,359,814	)


Net change in cash and cash equivalents for the period		16,701,779			(26,851,045	)


Cash and cash equivalents, beginning of period		84,727,933			66,217,123


Cash and cash equivalents, end of period	$	101,429,712		$	39,366,078

During the quarters ended January 31, 2008 and 2007 MVC Capital, Inc. paid $1,164,798 and $880,021 in interest expense, respectively.

During the quarters ended January 31, 2008 and 2007 MVC Capital, Inc. paid $0 and $62,085 in income taxes, respectively.

Non-cash activity:

During the three months ended January 31 2008 and 2007, MVC Capital, Inc. recorded payment in kind dividend and interest of $1,396,837 and $762,782, respectively. This amount was added to the principal balance of the investments and recorded as interest/dividend income.

During the three months ended January 31 2008 and 2007, MVC Capital, Inc. was allocated $201,916 and $24,472, respectively, in flow-through income from its equity investment in Octagon Credit Investors, LLC. Of this amount, $149,953, and $10,450, respectively, was received in cash and the balance of $51,963, and $14,022, respectively, was undistributed and therefore increased the cost of the investment. The fair value was then increased by the Fund’s Valuation Committee.

On November 1, 2006, MVC Capital, Inc. re-issued 2,326 shares of treasury stock, in lieu of a $28,871 cash distribution, in accordance with the Fund’s dividend reinvestment plan.

On January 5, 2007, MVC Capital, Inc. re-issued 3,684 shares of treasury stock, in lieu of a $48,641 cash distribution, in accordance with the Fund’s dividend reinvestment plan.

On November 1, 2007, MVC Capital, Inc. re-issued 15,821 shares of treasury stock, in lieu of a $240,636 cash distribution, in accordance with the Fund’s dividend reinvestment plan.

On December 3, 2007, MVC Capital, Inc. converted the Ohio Medical Corporation Convertible Unsecured Subordinated Promissory Note from $3,405,263.60 of principal and interest to 1,125.700 shares of Ohio Medical Preferred Stock.

On January 9, 2008, MVC Capital, Inc. re-issued 15,930 shares of treasury stock, in lieu of a $242,455 cash distribution, in accordance with the Fund’s dividend reinvestment plan.

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

MVC Capital, Inc.
Consolidated Statements of Changes in Net Assets


	For the Quarter Ended			For the Quarter Ended			For the Year Ended
	January 31, 2008			January 31, 2007			October 31, 2007
	(Unaudited)			(Unaudited)
Operations:
Net operating income (loss)	$	3,347,291		$	(1,569,360	)	$	2,059,713
Net realized gain		656,418			3,968			66,943,545
Net change in unrealized appreciation (depreciation)		16,809,199			20,642,228			(3,301,612	)


Net increase in net assets from operations		20,812,908			19,076,836			65,701,646


Shareholder Distributions:
Distributions to shareholders		(2,913,739	)		(3,437,326	)		(12,171,688	)


Net decrease in net assets from shareholder distributions		(2,913,739	)		(3,437,326	)		(12,171,688	)


Capital Share Transactions:
Issuance of common stock		—			—			83,825,625
Offering expenses		—			—			(5,431,091	)
Reissuance of treasury stock in lieu of cash dividend		483,091			77,512			178,903


Net increase in net assets from capital share transactions		483,091			77,512			78,573,437


Total increase in net assets		18,382,260			15,717,022			132,103,395


Net assets, beginning of period		369,096,769			236,993,374			236,993,374


Net assets, end of period	$	387,479,029		$	252,710,396		$	369,096,769


Common shares outstanding, end of period		24,297,087			19,099,939			24,265,336

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

MVC Capital, Inc.
Consolidated Selected Per Share Data and Ratios


	For the			For the			For the
	Quarter Ended			Quarter Ended			Year Ended
	January 31, 2008			January 31, 2007			October 31, 2007
	(Unaudited)			(Unaudited)

Net asset value, beginning of period	$	15.21		$	12.41		$	12.41

Gain (loss) from operations:
Net operating income gain (loss)		0.14			(0.08	)		0.13
Net realized and unrealized gain on investments		0.72			1.08			2.79


Total gain from investment operations		0.86			1.00			2.92


Less distributions from:
Income		(0.12	)		(0.18	)		(0.54	)

Total distributions		(0.12	)		(0.18	)		(0.54	)


Capital share transactions
Anit-dilutive effect of share issuance		—			—			0.42


Total capital share transactions		—			—			0.42

Net asset value, end of period	$	15.95		$	13.23		$	15.21

Market value, end of period	$	15.27		$	15.26		$	17.06


Market premium (discount)		(4.26	)%		15.34	%		12.16	%

Total Return — At NAV (a)		5.69	%		8.17	%		27.39	%

Total Return — At Market (a)		(9.79	)%		18.24	%		35.02	%

Ratios and Supplemental Data:

Net assets, end of period (in thousands)	$	387,479		$	252,710		$	369,097

Ratios to average net assets:
Expenses excluding tax expense (benefit)		5.86	%(b)		11.48	%(b)		7.89	%
Expenses including tax expense (benefit), incentive compensation, interest and other borrowing costs		5.88	%(b)		11.51	%(b)		7.78	%
Expenses excluding incentive compensation		4.10	%(b)		5.69	%(b)		4.40	%
Expenses excluding incentive compensation, interest and other borrowing costs		2.86	%(b)		3.83	%(b)		2.88	%

Net operating income (loss) before tax expense (benefit)		3.57	%(b)		(2.56)	%(b)		0.53	%
Net operating income (loss) after tax expense (benefit), incentive compensation, interest and other borrowing costs		3.55	%(b)		(2.59)	%(b)		0.64	%
Net operating income (loss) before incentive compensation		5.33	%(b)		3.23	%(b)		4.02	%
Net operating income (loss) before incentive compensation, interest and other borrowing costs		6.57	%(b)		5.09	%(b)		5.54	%


(a)		Total annual return is historical and assumes changes in share price, reinvestments of all dividends and distributions, and no sales charge for the year.

(b)		Annualized.

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

MVC Capital, Inc.
Consolidated Schedule of Investments
January 31, 2008
(Unaudited)


Company	Industry	Investment	Principal		Cost		Fair Value
Non-control/Non-affiliated investments — 24.25% (a, c, f, g)

Actelis Networks, Inc.	Technology Investments	Preferred Stock (150,602 shares) (d)			$	5,000,003	$	—

Amersham Corp.	Manufacturer of Precision — Machined Components	Second Lien Seller Note 10.0000%, 06/29/2010 (h)	$	2,473,521		2,473,521		2,473,521
		Second Lien Seller Note 16.0000%, 06/30/2013 (b, h)		3,216,180		3,216,180		3,216,180

						5,689,701		5,689,701

BP Clothing, LLC	Apparel	Second Lien Loan 14.0000%, 07/18/2012 (b, h)		17,920,864		17,656,109		17,920,864
		Term Loan A 9.1600%, 07/18/2011 (h)		2,460,000		2,427,945		2,427,945
		Term Loan B 11.3100%, 07/18/2011(h)		2,000,000		1,974,108		1,974,108

						22,058,162		22,322,917

DPHI, Inc.	Technology Investments	Preferred Stock (602,131 shares) (d)				4,520,355		—

FOLIOfn, Inc.	Technology Investments	Preferred Stock (5,802,259 shares) (d)				15,000,000		13,600,000

Henry Company	Building Products / Specialty Chemicals	Term Loan A 8.3450%, 04/06/2011(h)		1,837,309		1,837,309		1,837,309
		Term Loan B 12.5950%, 04/06/2011 (h)		2,000,000		2,000,000		2,000,000

						3,837,309		3,837,309

Innovative Brands, LLC	Consumer Products	Term Loan 11.1250%, 09/25/2011 (h)		14,812,500		14,812,500		14,812,500

JDC Lighting, LLC	Electrical Distribution	Senior Subordinated Debt 17.0000%, 01/31/2009 (b, h)		3,211,387		3,188,431		3,211,387

Lockorder Limited	Technology Investments	Common Stock (21,064 shares) (d, e)				2,007,701		—

MainStream Data, Inc.	Technology Investments	Common Stock (5,786 shares) (d)				3,750,000		—

SafeStone Technologies Limited	Technology Investments	Common Stock (21,064 shares) (d, e)				2,007,701		—

Sonexis, Inc.	Technology Investments	Common Stock (131,615 shares) (d)				10,000,000		—

SP Industries, Inc.	Laboratory Research Equipment	First Lien Loan 9.8450%, 12/28/2012 (h)		1,000,000		552,492		1,000,000
		Second Lien Loan 15.0000%, 12/31/2013 (b,h)		23,000,000		22,501,918		23,000,000

						23,054,410		24,000,000

Storage Canada, LLC	Self Storage	Term Loan 8.7500%, 03/30/2013 (h)		1,294,000		1,299,179		1,294,000
		Term Loan 8.7500%, 01/19/2014 (h)		705,000		705,000		705,000

						2,004,179		1,999,000

Total Safety U.S., Inc.	Engineering Services	First Lien Seller Note 6.2606%, 12/08/2012 (h)		6,833		6,833		6,833
		First Lien Seller Note 8.1425%, 12/08/2012 (h)		983,167		983,167		983,167
		Second Lien Seller Note 11.3319%, 12/08/2013 (h)		3,500,000		3,500,000		3,500,000

						4,490,000		4,490,000

Sub Total Non-control/Non-affiliated investments						121,420,452		93,962,814

Affiliate investments — 30.09% (a, c, f, g)

Custom Alloy Corporation	Manufacturer of Pipe Fittings	Unsecured Subordinated Loan 14.0000%, 09/18/2012 (b,h)		14,286,466		13,832,941		14,286,466
		Convertible Series A Preferred Stock (9 shares) (d)				44,000		66,000
		Convertible Series B Preferred Stock (1,991 shares) (d)				9,956,000		14,934,000

						23,832,941		29,286,466

Dakota Growers Pasta Company, Inc.	Manufacturer of Packaged Foods	Common Stock (1,016,195 shares)				5,521,742		10,161,950
		Convertible Preferred Stock (1,065,000)				10,357,500		10,650,000

						15,879,242		20,811,950

Endymion Systems, Inc.	Technology Investments	Preferred Stock (7,156,760 shares) (d)				7,000,000		—

HuaMei Capital Company, Inc.	Financial Services	Common Stock (500 shares) (d)				2,000,000		2,000,000

Marine Exhibition Corporation	Theme Park	Senior Subordinated Debt 11.0000%, 06/30/2013 (b, h)		10,614,029		10,458,805		10,614,029
		Convertible Preferred Stock (20,000 shares)(b)				2,247,524		2,247,524

						12,706,329		12,861,553

Octagon Credit Investors, LLC	Financial Services	Term Loan 9.0950%, 12/31/2011 (h)		5,000,000		4,947,792		5,000,000
		Revolving Line of Credit 9.0950%, 12/31/2011 (h)		9,750,000		9,750,000		9,750,000
		Limited Liability Company Interest				1,162,334		3,817,238

						15,860,126		18,567,238

Phoenix Coal Corporation	Coal Processing and Production	Common Stock (1,666,667 shares) (d)				1,000,000		1,000,000

PreVisor, Inc.	Human Capital Management	Common Stock (9 shares) (d)				6,000,000		9,000,000

Vitality Foodservice, Inc.	Non-Alcoholic Beverages	Common Stock (556,472 shares) (d)				5,564,716		7,510,373
		Preferred Stock (1,000,000 shares) (b, h)				9,817,667		12,719,438
		Warrants (d)				—		2,856,170

						15,382,383		23,085,981


Sub Total Affiliate investments						99,661,021		116,613,188

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

MVC Capital, Inc.
Consolidated Schedule of Investments — (Continued)
January 31, 2008
(Unaudited)


Company	Industry	Investment	Principal		Cost		Fair Value

Control Investments — 48.18% (a, c, f, g)

auto MOTOL BENI	Automotive Dealership	Bridge Loan 12.0000%, 02/28/2008 (e, h)	$	2,000,000	$	2,000,000	$	2,000,000
		Common Stock (200 shares)(d, e)				2,000,000		2,700,000

						4,000,000		4,700,000

Harmony Pharmacy & Health Center, Inc.	Healthcare — Retail	Revolving Credit Facility 10.0000%, 12/01/2009 (h)		4,000,000		4,000,000		4,000,000
		Demand Note 10.0000% 12/01/2009 (h)		1,000,000		1,000,000		1,000,000
		Common Stock (2,000,000 shares) (d)				750,000		750,000

						5,750,000		5,750,000

MVC Automotive Group BV	Automotive	Common Equity Interest (d, e)				20,911,500		20,911,500
		Bridge Loan 10.0000%, 03/17/2008 (e, h)		1,643,557		1,643,557		1,643,557

						22,555,057		22,555,057

MVC Partners, LLC	Private Equity Firm	Limited Liability Company Interest (d)				332,698		332,698

Ohio Medical Corporation	Medical Device Manufacturer	Common Stock (5,620 shares) (d)				17,000,000		17,200,000
		Series A Convertible Preferred Stock (9,917 shares) (b, h)				30,000,000		30,000,000

						47,000,000		47,200,000

SGDA Europe BV	Soil Remediation	Common Equity Interest (d, e)				750,000		750,000

SGDA Sanierungsgesellschaft	Soil Remediation	Term Loan 7.0000%, 08/25/2009 (e, h)		6,187,350		6,077,062		6,077,062
fur Deponien und Altlasten		Common Equity Interest (d, e)				438,551		560,000
		Preferred Equity Interest (d, e)				5,000,000		5,725,000

						11,515,613		12,362,062

SIA Tekers Invest	Port Facilities	Common Stock (68,800 shares) (d, e)				2,300,000		2,700,000

Summit Research Labs, Inc.	Specialty Chemicals	Second Lien Loan 14.0000%, 08/15/2012 (b, h)		5,512,175		5,436,547		5,512,175
		Common Stock (800 shares) (d)				11,200,000		12,200,000

						16,636,547		17,712,175

Timberland Machines & Irrigation, Inc.	Distributor — Landscaping and	Senior Subordinated Debt 14.5500%, 08/04/2009 (b, h)		6,956,402		6,925,569		6,956,402
	Irrigation Equipment	Junior Revolving Line of Credit 12.5000%, 07/07/2009 (h)		5,000,000		5,000,000		5,000,000
		Common Stock (542 shares) (d)				5,420,291		3,420,291
		Warrants (d)				—		—

						17,345,860		15,376,693

Turf Products, LLC	Distributor — Landscaping and	Senior Subordinated Debt 15.0000%, 11/30/2010 (b, h)		7,676,330		7,644,509		7,676,330
	Irrigation Equipment	Secured Junior Revolving Note 12.50000%, 05/01/2008 (h)		1,000,000		1,000,000		1,000,000
		Limited Liability Company Interest (d)				3,821,794		5,821,794
		Warrants (d)				—		—

						12,466,303		14,498,124

U.S. Gas & Electric, Inc.	Energy Services	Second Lien Loan 14.0000%, 07/26/2012 (b, h)		5,622,555		5,425,434		5,622,555
		Senior Credit Facility 12.2500% 07/26/2010 (h)		2,577,385		2,577,385		2,577,385
		Convertible Series B Preferred Stock (32,200 shares) (d)				500,000		2,700,000

		Convertible Series C Preferred Stock (8,216 shares) (d)				—		—
		Convertible Series F Preferred Stock (945 shares) (d)				—		—

						8,502,819		10,899,940

Velocitius B.V.	Renewable Energy	Revolving Credit Facility II, 8.0000%, 04/30/2010 (e, h)		612,882		612,882		612,882
		Common Equity Interest (d, e)				11,395,315		14,051,315

						12,008,197		14,664,197

Vendio Services, Inc.	Technology Investments	Common Stock (10,476 shares) (d)				5,500,000		15,421
		Preferred Stock (6,443,188 shares) (d)				1,134,001		9,484,579

						6,634,001		9,500,000

Vestal Manufacturing Enterprises, Inc.	Iron Foundries	Senior Subordinated Debt 12.0000%, 04/29/2011 (h)		700,000		700,000		700,000
		Common Stock (81,000 shares) (d)				1,850,000		3,700,000

						2,550,000		4,400,000

WBS Carbons Acquistions Corp.	Specialty Chemicals	Bridge Loan 5.0000%, 11/22/2011(b, h)		1,681,111		1,681,111		1,681,111
		Common Stock (400 shares) (d)				1,600,000		1,600,000

						3,281,111		3,281,111


Sub Total Control Investments						173,628,206		186,682,057


TOTAL INVESTMENT ASSETS — 102.52% (f)					$	394,709,679	$	397,258,059


(a)		These securities are restricted from public sale without prior registration under the Securities Act of 1933.The Fund negotiates certain aspects of the method and timing of the disposition of these investments, including registration rights and related costs.

(b)		These securities accrue a portion of their interest/dividends in “payment in kind” interest/dividends which is capitalized to the investment.

(c)		All of the Fund’s equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except auto MOTOL BENI, Lockorder Limited, SafeStone Technologies Limited, MVC Automotive, SGDA Europe BV, SGDA Sanierungsgesellschaft fur Deponien und Altlasten, SIA Tekers Invest and Velocitius B.V.The Fund makes available significant managerial assistance to all of the portfolio companies in which it has invested.

(d)		Non-income producing assets.

(e)		The principal operations of these portfolio companies are located outside of the United States.

(f)		Percentages are based on net assets of $387,479,029 as of January 31, 2008.

(g)		See Note 3 for further information regarding “Investment Classification.”

(h)		All or a portion of these securities have been committed as collateral for the Guggenheim Corporate Funding, LLC Credit Facility.

•		Denotes zero Cost or fair value.

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

MVC Capital, Inc.
Consolidated Schedule of Investments
October 31, 2007


Company	Industry	Investment	Principal		Cost		Fair Value

Non-control/Non-affiliated investments — 23.18% (a, c, g, f)

Actelis Networks, Inc.	Technology Investments	Preferred Stock (150,602 shares) (d)			$	5,000,003	$	—

Amersham Corp.	Manufacturer of Precision — Machined Components	Second Lien Seller Note 10.0000%, 06/29/2010 (h)	$	2,659,035		2,659,035		2,659,035
		Second Lien Seller Note 16.0000%, 06/30/2013 (b, h)		3,090,594		3,090,594		3,090,594

						5,749,629		5,749,629

BP Clothing, LLC	Apparel	Second Lien Loan 14.0000%, 07/18/2012 (b, h)		17,829,579		17,549,872		17,829,580
		Term Loan A 9.3800%, 07/18/2011(h)		2,550,000		2,514,351		2,514,351
		Term Loan B 11.5300%, 07/18/2011(h)		2,000,000		1,972,222		1,972,222

						22,036,445		22,316,153

DPHI, Inc.	Technology Investments	Preferred Stock (602,131 shares) (d)				4,520,355		—

FOLIOfn, Inc.	Technology Investments	Preferred Stock (5,802,259 shares) (d)				15,000,000		7,600,000

Henry Company	Building Products / Specialty Chemicals	Term Loan A 8.6280%, 04/06/2011(h)		1,837,309		1,837,309		1,837,309
		Term Loan B 12.5025%, 04/06/2011 (h)		2,000,000		2,000,000		2,000,000

						3,837,309		3,837,309

Innovative Brands, LLC	Consumer Products	Term Loan 11.1250%, 09/25/2011 (h)		14,850,000		14,850,000		14,850,000

JDC Lighting, LLC	Electrical Distribution	Senior Subordinated Debt 17.0000%, 01/31/2009 (b, h)		3,175,371		3,147,234		3,175,371

Lockorder Limited	Technology Investments	Common Stock (21,064 shares) (d, e)				2,007,701		—

MainStream Data, Inc.	Technology Investments	Common Stock (5,786 shares) (d)				3,750,000		—

SafeStone Technologies Limited	Technology Investments	Common Stock (21,064 shares) (d, e)				2,007,701		—

Sonexis, Inc.	Technology Investments	Common Stock (131,615 shares) (d)				10,000,000		—

SP Industries, Inc.	Laboratory Research Equipment	Term Loan B 13.1300%, 03/31/2011(h)		7,392,634		7,361,420		7,392,634
		Senior Subordinated Debt 16.0000%, 03/31/2012 (b, h)		13,485,570		13,236,072		13,485,570

						20,597,492		20,878,204

Storage Canada, LLC	Self Storage	Term Loan 8.7500%, 03/30/2013 (h)		1,320,500		1,326,047		1,320,500
		Term Loan 8.7500%, 10/06/2013 (h)		619,000		619,000		619,000
		Term Loan 8.7500%, 01/19/2014 (h)		705,000		705,000		705,000

						2,650,047		2,644,500

Total Safety U.S., Inc.	Engineering Services	First Lien Seller Note 8.1425%, 12/08/2012 (h)		992,500		992,500		992,500
		Second Lien Seller Note 11.3318%, 12/08/2013 (h)		3,500,000		3,500,000		3,500,000

						4,492,500		4,492,500

Sub Total Non-control/Non-affiliated investments						119,646,416		85,543,666


Affiliate investments — 34.67% (a, c, g, f)

Custom Alloy Corporation	Manufacturer of Pipe Fittings	Unsecured Subordinated Loan 14.0000%, 09/18/2012 (b,h)		14,035,389		13,557,190		14,035,389
		Convertible Series A Preferred Stock (9 shares) (d)				44,000		44,000
		Convertible Series B Preferred Stock (1,991 shares) (d)				9,956,000		9,956,000

						23,557,190		24,035,389

Dakota Growers Pasta Company, Inc.	Manufacturer of Packaged Foods	Common Stock (1,016,195 shares)				5,521,742		10,161,950
		Convertible Preferred Stock (1,065,000) (d)				10,357,500		10,650,000

						15,879,242		20,811,950

Endymion Systems, Inc.	Technology Investments	Preferred Stock (7,156,760 shares) (d)				7,000,000		—

Genevac U.S. Holdings, Inc.	Laboratory Research Equipment	Senior Subordinated Debt 12.5000%, 01/03/2008 (e, h)		12,962,963		12,962,963		12,962,963
		Common Stock (140 shares) (b, e)				1,103,002		1,103,002

						14,065,965		14,065,965

HuaMei Capital Company, Inc.	Financial Services	Common Stock (500 shares) (d)				2,000,000		2,000,000

Impact Confections, Inc.	Confections Manufacturing and Distribution	Senior Subordinated Debt 17.0000%, 07/30/2009 (b, h)		5,718,372		5,664,803		5,718,372
		Promissory Note 9.1287%, 07/29/2008 (h)		325,000		323,388		325,000
		Common Stock (252 shares) (d)				2,700,000		2,700,000

						8,688,191		8,743,372

Marine Exhibition Corporation	Theme Park	Senior Subordinated Debt 11.0000%, 06/30/2013 (b, h)		10,506,628		10,344,177		10,506,628
		Convertible Preferred Stock (20,000 shares)(b)				2,203,455		2,203,455

						12,547,632		12,710,083

Octagon Credit Investors, LLC	Financial Services	Term Loan 9.3790%, 12/31/2011 (h)		5,000,000		4,944,431		5,000,000
		Revolving Line of Credit 9.3790%, 12/31/2011 (h)		4,100,000		4,100,000		4,100,000
		Limited Liability Company Interest				1,110,370		3,765,275


						10,154,801		12,865,275

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

MVC Capital, Inc.
Consolidated Schedule of Investments — (Continued)
October 31, 2007


Company	Industry	Investment	Principal		Cost		Fair Value
Phoenix Coal Corporation	Coal Processing and Production	Common Stock (1,666,667 shares) (d)				$1,000,000		$1,000,000

PreVisor, Inc.	Human Capital Management	Common Stock (9 shares) (d)				6,000,000		9,000,000

Vitality Foodservice, Inc.	Non-Alcoholic Beverages	Common Stock (556,472 shares) (d)				5,564,716		9,064,716
		Preferred Stock (1,000,000 shares) (b, h)				9,660,637		12,562,408
		Warrants (d)				—		1,100,000

						15,225,353		22,727,124

Sub Total Affiliate investments						116,118,374		127,959,158


Control Investments — 44.88% (a, c, g, f)

auto MOTOL BENI	Automotive Dealership	Bridge Loan 12.0000%, 12/31/2007 (e, h)		$2,000,000		2,000,000		2,000,000
		Common Stock (200 shares)(d, e)				2,000,000		2,700,000

						4,000,000		4,700,000

Harmony Pharmacy & Health Center, Inc.	Healthcare — Retail	Revolving Credit Facility 10.0000%, 12/01/09 (h)		4,000,000		4,000,000		4,000,000
		Common Stock (2,000,000 shares) (d)				750,000		750,000

						4,750,000		4,750,000

MVC Automotive Group BV	Automotive Dealership	Common Equity Interest (d,e)				20,911,500		20,911,500
		Bridge Loan 10.0000%, 03/17/2008 (e,h)		19,088,500		19,088,500		19,088,500

						40,000,000		40,000,000

MVC Partners, LLC	Private Equity Firm	Limited Liability Company Interest (d)				116,173		116,173

Ohio Medical Corporation	Medical Device Manufacturer	Common Stock (5,620 shares) (d)				17,000,000		17,200,000
		Convertible Unsecured Subordinated Promissary Note 17.1288%, 07/30/2008 (h)		3,250,000		3,250,000		3,250,000

						20,250,000		20,450,000

SIA Tekers Invest	Port Facilities	Common Stock (68,800 shares) (d, e)				2,300,000		2,600,000

SGDA Sanierungsgesellschaft fur Deponien und Altlasten	Soil Remediation	Term Loan 7.0000%, 08/25/2009 (e, h)		6,187,350		6,059,477		6,059,477
		Common Equity Interest (d, e)				438,551		560,000
		Preferred Equity Interest (d, e)				5,000,000		5,600,000

						11,498,028		12,219,477

Summit Research Labs, Inc.	Specialty Chemicals	Second Lien Loan 14.0000%, 08/15/2012 (b, h)		5,414,733		5,334,906		5,414,733
		Common Stock (800 shares) (d)				11,200,000		12,200,000

						16,534,906		17,614,733

Timberland Machines & Irrigation, Inc.	Distributor — Landscaping and	Senior Subordinated Debt 14.5500%, 08/04/2009 (b, h)		6,860,431		6,824,441		6,860,431
	Irrigation Equipment	Junior Revolving Line of Credit 12.5000%, 07/07/2009(h)		4,000,000		4,000,000		4,000,000
		Common Stock (542 shares) (d)				5,420,291		3,420,291
		Warrants (d)				—		—

						16,244,732		14,280,722

Turf Products, LLC	Distributor — Landscaping and Irrigation Equipment	Senior Subordinated Debt 15.0000%, 11/30/2010 (b, h)		7,676,330		7,636,647		7,676,330
		Limited Liability Company Interest (d)				3,821,794		5,821,794
		Warrants (d)				—		—

						11,458,441		13,498,124

U.S. Gas & Electric, Inc.	Energy Services	Second Lien Loan 14.0000%, 07/26/2012 (b, h)		5,551,318		5,343,119		5,551,318
		Senior Credit Facility 12.2500% 7/26/2010 (h)		84,882		84,882		84,882
		Convertible Series B Preferred Stock (32,200 shares) (d)				500,000		500,000
		Convertible Series C Preferred Stock (8,216 shares) (d)				—		—
		Convertible Series F Preferred Stock (1,535 shares) (d)				—		—

						5,928,001		6,136,200

Velocitius B.V.	Renewable Energy	Revolving Credit Facility I, 8.0000%, 10/31/2009 (e, h)		191,084		191,084		191,084
		Revolving Credit Facility II, 8.0000%, 04/30/2010 (e, h)		612,882		612,882		612,882
		Common Equity Interest (d, e)				11,395,315		11,395,315

						12,199,281		12,199,281

Vendio Services, Inc.	Technology Investments	Common Stock (10,476 shares) (d)				5,500,000		15,421
		Preferred Stock (6,443,188 shares) (d)				1,134,001		9,484,579

						6,634,001		9,500,000

Vestal Manufacturing Enterprises, Inc.	Iron Foundries	Senior Subordinated Debt 12.0000%, 04/29/2011 (h)		700,000		700,000		700,000
		Common Stock (81,000 shares) (d)				1,850,000		3,700,000

						2,550,000		4,400,000

WBS Carbons Acquisitions Corp.	Specialty Chemicals	Bridge Loan 5.0000%, 11/22/2011 (b, h)		1,600,000		1,600,000		1,600,000
		Common Stock (400 shares) (d)				1,600,000		1,600,000

						3,200,000		3,200,000


Sub Total Control Investments						157,663,563		165,664,710

TOTAL INVESTMENT ASSETS 102.73% (f)					$	393,428,353	$	379,167,534


(a)		These securities are restricted from public sale without prior registration under the Securities Act of 1933.The Fund negotiates certain aspects of the method and timing of the disposition of these investments, including registration rights and related costs.

(b)		These securities accrue a portion of their interest/dividends in “payment in kind” interest/dividends which is capitalized to the investment.

(c)		All of the Fund’s equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except auto MOTOL BENI, Genevac U.S. Holdings, Inc., Lockorder Limited, SafeStone Technologies Limited, MVC Automotive, SGDA Sanierungsgesellschaft fur Deponien und Altlasten, SIA Tekers Invest and Velocitius B.V. The Fund makes available significant managerial assistance to all of the portfolio companies in which it has invested.

(d)		Non-income producing assets.

(e)		The principal operations of these portfolio companies are located outside of the United States.

(f)		Percentages are based on net assets of $369,096,769 as of October 31, 2007.

(g)		See Note 3 for further information regarding “Investment Classification.”

(h)		All or a portion of these securities have been committed as collateral for the Guggenheim Corporate Funding, LLC Credit Facility.

•		Denotes zero Cost or fair value.

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

MVC Capital, Inc. (the “Company”)
Notes to Consolidated Financial Statements
January 31, 2008
(Unaudited)

1. Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. Certain amounts have been reclassified to adjust to current period presentations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2007, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 28, 2007 (File No. 814-00201).

2. Consolidation

On July 16, 2004, the Company formed a wholly-owned subsidiary, MVC Financial Services, Inc. (“MVCFS”). MVCFS is incorporated in Delaware and its principal purpose is to provide advisory, administrative and other services to the Company, the Company’s portfolio companies and other entities. MVCFS had opening equity of $1 (100 shares at $0.01 per share). The Company does not hold MVCFS for investment purposes and does not intend to sell MVCFS. In the consolidation, all intercompany accounts have been eliminated.

3. Investment Classification

As required by the Investment Company Act of 1940, as amended (the “1940 Act”), we classify our investments by level of control. As defined in the 1940 Act, “Control Investments” are investments in those companies that we are deemed to “Control.” “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of us, as defined in the 1940 Act, other than Control Investments. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments. Generally, under that 1940 Act, we are deemed to control a company in which we have invested if we own 25% or more of the voting securities of such company or have greater than 50% representation on its board. We are deemed to be an affiliate of a company in which we have invested if we own 5% or more and less than 25% of the voting securities of such company.

4. Concentration of Market Risk

Financial instruments that subjected the Company to concentrations of market risk consisted principally of equity investments, subordinated notes, and debt instruments, which represented approximately 78.68% of the Company’s total assets at January 31, 2008. As discussed in Note 5, these investments consist of securities in companies with no readily determinable market values and as such are valued in accordance with the Company’s fair value policies and procedures. The Company’s investment strategy represents a high degree of business and financial risk due to the fact that the investments (other than cash equivalents) are generally illiquid, in small and middle market companies, and include entities with little operating history or entities that possess operations in new or developing industries. These investments, should they become publicly traded, would generally be (i) subject to restrictions on resale, if they were acquired from the issuer in private placement transactions; and (ii) susceptible to market risk.

5. Portfolio Investments

For the Three Month Period Ended January 31, 2008

During the three month period ended January 31, 2008, the Company made two new investments, committing capital totaling approximately $24.8 million. The investments were made in SP Industries, Inc. (“SP”) ($24.0 million) and SGDA Europe BV (“SGDA Europe”) ($750,000).

The Company also made three follow-on investments in existing portfolio companies committing capital totaling approximately $41.2 million. During the quarter ending January 31, 2008, the Company made additional investments totaling approximately $217,000 in MVC Partners LLC (“MVC Partners”). In connection with these investments, MVC Partners has made an investment in MVC Acquisition Corp., a newly-formed blank check company organized for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. We have agreed to serve as the corporate sponsor of MVC Acquisition Corp. Michael Tokarz, our Chairman and Portfolio Manager and the Manager of TTG Advisers, and Peter Seidenberg, our Chief Financial Officer, currently serve as Chairman of the Board and Chief Financial Officer, respectively, for MVC Acquisition Corp. In connection with our sponsorship of MVC Acquisition Corp., we have agreed to purchase, through MVC Partners, an aggregate of $5,000,000 of warrants from MVC Acquisition Corp. concurrent with the consummation of its initial public offering. On November 26, 2007 and December 20, 2007, the Company made additional investments of $500,000 in Harmony Pharmacy & Health Center, Inc. (“Harmony Pharmacy”) in the form of a $1.0 million demand note. The demand note has an annual interest rate of 10%. On November 30, 2007, the Company invested an additional $36.7 million in Ohio Medical Corporation (“Ohio Medical”) in the form of a $10.0 million senior subordinated note and $26.7 million in 9,917 shares of convertible preferred stock. At this time, the $3.3 million convertible unsecured subordinated promissory note was converted into preferred stock for a total investment in Ohio Medical of $40.0 million. The note has an annual interest rate of 16% and a maturity date of May 30, 2012. On December 13, 2007, the Company assigned the Ohio Medical $10.0 million senior subordinated note to AEA Investors LLC.

At the beginning of the 2008 fiscal year, the junior revolving note provided to Timberland Machines & Irrigation, Inc. (“Timberland”) had a balance outstanding of $4.0 million. On January 25, 2008, the amount available on the revolving note was increased by $1.0 million to $5.0 million. Net borrowings during the three month period ended January 31, 2008 were $1.0 million resulting in a balance as of January 31, 2008 of $5.0 million.

At October 31, 2007, the balance of the revolving credit facility provided to Octagon Credit Investors, LLC (“Octagon”) was $4.1 million. Net borrowings during the three month period ended January 31, 2008 were $5.7 million resulting in a balance outstanding as of January 31, 2008 of approximately $9.8 million.

At October 31, 2007, the balance of Line I, as defined below, provided to Velocitius B.V. (“Velocitius”) was approximately $191,000. Net repayments during the three month period ended January 31, 2008 were approximately $191,000. As of January 31, 2008, there was no amount outstanding on Line I.

At October 31, 2007, the balance of Line II, as defined below, provided to Velocitius was approximately $613,000. As of January 31, 2008, there was approximately $613,000 outstanding on Line II.

At October 31, 2007, the balance of the revolving credit facility provided to U.S. Gas & Electric, Inc. (“U.S. Gas”) was approximately $85,000. Net borrowings during the three month period ended January 31, 2008 were $2.5 million resulting in a balance outstanding as of January 31, 2008 of approximately $2.6 million.

On November 1, 2007, December 1, 2007, and January 1, 2008, the Company received $111,111, respectively, as principal payments from SP on term loan B.

On November 2, 2007, Genevac U.S. Holdings, Inc. (“Genevac”) made a principal payment of $1.0 million on its senior subordinated loan.

On December 21, 2007, Storage Canada, LLC (“Storage Canada”) repaid a portion of its term loan. Total amount received including accrued interest was approximately $622,000.

On December 31, 2007, the Company received a quarterly principal payment from BP Clothing, LLC (“BP”) on term loan A of $90,000.

On December 31, 2007, Total Safety U.S., Inc. (“Total Safety”) made a principal payment of $2,500 on its first lien loan.

On December 31, 2007, Turf Products LLC (“Turf”) borrowed $1.0 million from the secured junior revolving note, which was the amount outstanding as of January 31, 2008.

On January 2, 2008, the Company received a principal payment of $37,500 on the term loan provided to Innovative Brands, LLC (“Innovative Brands”).

On January 2, 2008, SP repaid term loan B and senior subordinated loan in full including all accrued interest. The total amount received for term loan B was $7.1 million and the amount received for the senior subordinated loan was $13.6 million.

On January 2, 2008, Genevac repaid its senior subordinated loan in full including all accrued interest. The total amount received was $11.9 million. The Company, at this time, sold 140 shares of Genevac common stock for $1.7 million, resulting in a short-term capital gain of $595,000.

On January 15, 2008, Impact Confections, Inc. (“Impact”) repaid its promissory note and senior subordinated loan in full including all accrued interest. The total amounts received for the promissory note and the senior subordinated loan were approximately $331,000 and $5.8 million, respectively. The Company, at this time, sold 252 shares of common stock at cost for $2.7 million.

On January 29, 2008, MVC Automotive Group B.V. (“MVC Automotive”) made a principal payment of $17.4 million on its bridge loan, resulting in a principal balance of $1.6 million as of January 31, 2008.

During the three month period ended January 31, 2008, the Valuation Committee increased the fair value of the Company’s investments in U.S. Gas preferred stock by $2.2 million, SGDA Sanierungsgesellschaft fur Deponien und Altasten mbH (“SGDA”) preferred equity interest by $125,000, Foliofn, Inc. (“Foliofn”) preferred stock by $6.0 million, SIA Tekers Invest (“Tekers”) common stock by $100,000, Custom Alloy Corporation (“Custom Alloy”) preferred stock by $5.0 million, Velocitius equity interest by $2.7 million, and Vitality Foodservice, Inc. (“Vitality”) by approximately $200,000. In addition, increases in the cost basis and fair value of the loans to JDC Lighting, LLC (“JDC”), SP, Timberland, Amersham Corporation (“Amersham”), Marine Exhibition Corporation (“Marine”), BP, Summit Research Labs, Inc. (“Summit”), U.S. Gas, WBS Carbons Acquisition Corp. (“WBS”), Custom Alloy and the Vitality and Marine preferred stock were due to the capitalization of payment in kind (“PIK”) interest/dividends totaling $1,396,837. Also, during the three month period ended January 31, 2008, the undistributed allocation of flow through income from the Company’s equity investment in Octagon increased the cost basis and fair value of the Company’s investment by approximately $52,000.

At January 31, 2008, the fair value of all portfolio investments was $397.3 million with a cost basis of $394.7 million. At January 31, 2008, the fair value and cost basis of portfolio investments made by the Company’s former management team pursuant to the prior investment objective (“Legacy Investments”) was $23.1 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $374.2 million and $338.8 million, respectively. At October 31, 2007, the fair value of all portfolio investments was $379.2 million with a cost basis of $393.4 million. At October 31, 2007, the fair value and cost basis of Legacy Investments was $17.1 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $362.1 million and $337.5 million, respectively.

For the Year Ended October 31, 2007

During the fiscal year ended October 31, 2007, the Company made ten new investments, committing capital totaling approximately $117.3 million. The investments were made in WBS ($3.2 million), HuaMei Capital Company, Inc. (“HuaMei”) ($200,000), Levlad Arbonne International LLC (“Levlad”) ($10.1 million), Total Safety ($4.5 million), MVC Partners ($71,000), Genevac ($14.0 million), Tekers ($2.3 million), U.S. Gas ($18.9 million), Custom Alloy ($24.0 million), and MVC Automotive ($40.0 million).

The Company also made 16 follow-on investments in existing portfolio companies committing capital totaling approximately $49.8 million. On November 7, 2006, the Company invested $100,000 in SGDA by purchasing an additional common equity interest. On December 22, 2006, the Company purchased an additional 56,472 shares of common stock in Vitality at a cost of approximately $565,000. On January 9, 2007, the Company extended to Turf a $1.0 million junior revolving note. Turf immediately borrowed $1.0 million from the note. On January 11, 2007, the Company provided Harmony Pharmacy a $4.0 million revolving credit facility. Harmony Pharmacy immediately borrowed $1.75 million from the credit facility. On February 16, 2007, the Company invested $1.8 million in HuaMei purchasing 450 shares of common stock. At the same time, the previously issued $200,000 convertible promissory note was exchanged for 50 shares of HuaMei common stock at the same price. On February 19, 2007, the Company invested an additional $8.4 million of common equity interest in Velocitius. On February 21, 2007 and May 4, 2007, the Company provided BP a $5.0 million and a $2.5 million second lien loan, respectively. On March 26, 2007, the Company extended a $1.0 million bridge loan to Auto MOTOL BENI (“BENI”). On March 30, 2007, the Company invested an additional $5.0 million in SP in the form of a subordinated term loan B. On May 1, 2007, the Company extended to Velocitius a $650,000 revolving line of credit (“Line II”). Velocitius immediately borrowed approximately $547,000. The balance of the line of credit as of October 31, 2007 was approximately $613,000. On May 8, 2007, the Company provided Baltic Motors Corporation (“Baltic Motors”) a $5.5 million bridge loan. On May 9, 2007, the Company purchased 1.0 million shares of Dakota Growers Pasta Company, Inc. (“Dakota Growers”) preferred stock at a cost of $10.0 million. At that time, 65,000 shares of Dakota Growers common stock were converted to 65,000 shares of convertible preferred stock. On June 19, 2007, the Company increased the bridge loan to BENI to $2.0 million. The remaining available amount of $1.7 million was immediately drawn. On July 30, 2007, the Company provided Ohio Medical a $2.0 million convertible unsecured promissory note. On August 20, 2007, the Company contributed an additional $45,000 to MVC Partners, increasing the Company’s limited liability interest. On September 27, 2007, the Company invested an additional $1.25 million in Ohio Medical by increasing the convertible unsecured promissory note to $3.25 million.

At the beginning of the 2007 fiscal year, the junior revolving note provided to Timberland had a balance outstanding of approximately $2.8 million. On November 27, 2006, the amount available on the revolving note was increased by $750,000 to $4.0 million. Net borrowings during for the fiscal year ended October 31, 2007 were $1.2 million resulting in a balance as of October 31, 2007 of $4.0 million.

At October 31, 2006, the balance of the revolving credit facility provided to Octagon was $3.25 million. Net borrowings during the fiscal year ended October 31, 2007 were $850,000 resulting in a balance outstanding of $4.1 million.

At October 31, 2006, the balance of Line I provided to Velocitius was approximately $144,000. Net borrowings during the fiscal year October 31, 2007 were approximately $47,000. As of October 31, 2007, the balance of Line I was approximately $191,000.

On December 1, 2006, the Company received a principal payment of approximately $100,000 from Vestal Manufacturing Enterprises, Inc. (“Vestal”) on its senior subordinated debt. As of October 31, 2007, the balance of the loan was $700,000.

On December, 8, 2006, Total Safety repaid term loan A and term loan B in full including all accrued interest and prepayment fees. The total amount received for term loan A was $5,043,775 and for term loan B was $1,009,628.

On December 29, 2006, March 30, 2007, June 29, 2007, and September 28, 2007, the Company received quarterly principal payments from BP on term loan A of $90,000.

On January 1, 2007, April 2, 2007, July 2, 2007, and October 1, 2007, the Company received principal payments of $37,500 on the term loan provided to Innovative Brands on each payment date.

On January 2, 2007, March 1, 2007, and September 27, 2007, the Company received principal payments of approximately $96,000, $1.0 million, and $63,000, respectively, on term loan A from Henry Company.

On January 5, 2007, Baltic Motors repaid the bridge loan in full including all accrued interest. The total amount received from the repayment was $1,033,000.

On January 19, 2007, Storage Canada borrowed an additional $705,000 under their credit facility. The borrowing bears annual interest of 8.75% and has a maturity date of January 19, 2014.

On February 16, 2007, the Company exchanged the $200,000 convertible promissory note due from HuaMei for 50 shares of its common stock.

On March 8, 2007, Levlad repaid its loan in full, including all accrued interest and a prepayment fee. The total amount received from the payment was approximately $10.4 million.

On March 30, 2007, June 29, 2007, and September 28, 2007, Total Safety made principal payments of $2,500 on its first lien loan.

On April 12, 2007 and April 18, 2007, BENI made principal payments of $200,000 and $500,000, respectively, on its bridge loan.

On April 16, 2007, the assets and liabilities of SafeStone Technologies PLC were transferred to two new companies, Lockorder Limited (“Lockorder”) and SafeStone Technologies Limited (“SafeStone Limited”). The Company received 21,064 shares of SafeStone Limited and 21,064 shares of Lockorder as a result of this corporate action. On a combined basis, there was no change in the cost basis or fair value due to this transaction.

On May 1, 2007, Turf repaid its secured junior revolving note in full, including accrued interest. The total amount received from the payment was approximately $1.0 million. There were no borrowings outstanding on the revolving note as of October 31, 2007.

Beginning on May 1, 2007, the Company receives monthly principal payments of $111,111 from SP on term loan B. Total principal payments for the fiscal year ended October 31, 2007 was $666,666.

On July 7, 2007, the Company extended the maturity date of the Timberland junior revolver to July 7, 2009.

On July 24, 2007, the Company sold the common stock of Baltic Motors and SIA BM Auto (“BM Auto”). The amount received from the sale of the 60,684 common shares of Baltic Motors was approximately $62.0 million, net of closing and other transaction costs, working capital adjustments and a reserve established by the Company to satisfy certain post-closing conditions requiring capital and other expenditures. Baltic Motors repaid all debt from the Company in full including all accrued interest. Total amount received from the repayment of the debt was approximately $10.2 million including all accrued interest. The remaining $51.8 million, less the $8.0 million cost basis of Baltic Motors, resulted in $43.8 million recorded as realized gain. The difference between the $51.8 million received from the Baltic Motors equity and the carrying value at October 31, 2006 is $30.6 million and the amount of the increase in net assets attributable to fiscal year 2007. The portion of the capital gain related to the equity investment made on June 24, 2004 ($40.9 million), will be treated as long-term capital gain and the portion related to the equity investment made on September 28, 2006 ($2.9 million) will be treated as a short-term capital gain. The amount received from the sale of the 47,300 common shares of BM Auto was approximately $29.7 million, net of closing and other transaction costs, working capital adjustments and a reserve established by the Company to satisfy certain post-closing conditions requiring capital and other expenditures. The $29.7 million, less the $8.0 million cost basis of BM Auto, resulted in $21.7 million recorded as a long term capital gain. The difference between the $29.7 million received from the BM Auto equity and the carrying value at October 31, 2006 is $21.7 million, which is the amount of the increase in net assets attributable to fiscal year 2007.

As mentioned above, a reserve account of approximately $3.0 million was created for post closing conditions that are required of the seller as a part of the purchase agreement. The cash held in the reserve account was held in Euros. On October 17, 2007, all post-closing conditions from the acquisition were satisfied. Of the $3.0 million held in reserve, $1.0 million was not needed to satisfy the post-closing conditions and as a result was added to the Company’s gain on the sale. Of the $1.0 million gain from the reserve account, approximately $887,000 is attributable to the sale of Baltic Motors and approximately $148,000 is attributable to the sale to BM Auto. The Company also had a currency gain of approximately $42,000 from the reserve account. Total gain from the sale of Baltic Motors and BM Auto was $66.5 million.

On July 27, 2007, U.S. Gas repaid its bridge loan in full, including accrued interest. The total amount received was approximately $908,000.

On August 1, 2007, Phoenix Coal Corporation (“Phoenix Coal”) repaid its second lien loan in full including all accrued interest and fees. Total amount received from the repayment was approximately $8.4 million.

On October 31, 2007, the Company restructured the terms of the Amersham loans. The accrued interest on the loan with an outstanding balance of $2.7 million at October 31, 2007 was capitalized. The default PIK interest on the loan with a balance of $3.1 million at October 31, 2007 was forgiven up to seventy five percent. The interest rate on this loan has been reduced to the original rate of 16%.

Net borrowings on the Harmony Pharmacy revolving credit facility during the fiscal year ended October 31, 2007 were $4.0 million, resulting in a balance outstanding of approximately $4.0 million.

Net borrowings on the U.S. Gas senior credit facility during the fiscal year ended October 31, 2007 were approximately $85,000, resulting in a balance outstanding of approximately $85,000.

During the fiscal year ended October 31, 2007, the Valuation Committee increased the fair value of the Company’s investments in Dakota Growers common stock by approximately $1.9 million, Octagon’s membership interest by approximately $1.6 million, SGDA common equity interest by approximately $121,000 and preferred equity interest by $600,000, PreVisor, Inc. (“PreVisor”) common stock by $3.0 million, Foliofn preferred stock by $2.6 million, Tekers common stock by $300,000, BENI common stock by $700,000, Summit preferred stock by $1.0 million, Vendio Services, Inc. (“Vendio”) preferred stock by $6.1 million, and Vendio common stock by approximately $15,000. In addition, increases in the cost basis and fair value of the loans to Impact, JDC, SP, Timberland, Amersham, Marine, Phoenix Coal, BP, Turf, Summit, U.S. Gas, Custom Alloy, Vitality and Marine preferred stock, and Genevac common stock were due to the capitalization of PIK interest/dividends totaling $2,850,999. Also, during the fiscal year ended October 31, 2007, the undistributed allocation of flow through income from the Company’s equity investment in Octagon increased the cost basis and fair value of the Company’s investment by $216,275. The Valuation Committee also decreased the fair value of the Company’s investments in Ohio Medical by $9.0 million and Timberland common stock by $1.0 million during the fiscal year ended October 31, 2007.

At October 31, 2007, the fair value of all portfolio investments was $379.2 million with a cost basis of $393.4 million. At October 31, 2007, the fair value and cost basis of the Legacy Investments was $17.1 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $362.1 million and $337.5 million, respectively. At October 31, 2006, the fair value of all portfolio investments was $275.9 million with a cost basis of $286.9 million. At October 31, 2006, the fair value and cost basis of Legacy Investments was $8.4 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $267.5 million and $231.0 million, respectively.

6. Commitments and Contingencies

Commitments to/for Portfolio Companies:

At January 31, 2008, the Company’s existing commitments to portfolio companies consisted of the following:


Commitments of MVC Capital, Inc.
Portfolio Company	Amount Committed		Amount Funded at January 31, 2008

Timberland	$	5.0 million	$	5.0 million
Storage Canada	$	6.0 million	$	2.0 million
Marine	$	2.0 million	$	—
BENI	$	556,430	$	—
Octagon	$	12.0 million	$	9.8 million
Velocitius	$	260,000		—
Velocitius	$	650,000	$	612,882
Turf	$	1.0 million	$	1.0 million
Harmony Pharmacy	$	4.0 million	$	4.0 million
Tekers	$	2.1 million		—
U.S. Gas	$	10.0 million	$	2.6 million
U.S. Gas	$	2.0 million		—
MVC Automotive	$	9.6 million		—
MVC Automotive	$	5.9 million		—
Total	$	61.1 million	$	25.0 million

On June 30, 2005, the Company pledged its common stock of Ohio Medical to Guggenheim to collateralize a loan made by Guggenheim to Ohio Medical.

On July 8, 2005 the Company extended to Timberland a $3.25 million junior revolving note that bears interest at 12.5% per annum and expires on July 7, 2009. The Company also receives a fee of 0.25% on the unused portion of the note. On November 27, 2006, the amount available on the revolving note was increased by $750,000 to $4.0 million. As of October 31, 2007, the funded debt under the junior revolving line of credit was $4.0 million. On January 25, 2008, the amount available on the revolving note was increased by $1.0 million to $5.0 million. Net borrowings during for the three month period ended January 31, 2008 were $1.0 million resulting in a balance as of January 31, 2008 of $5.0 million.

On March 30, 2006, the Company provided a $6.0 million loan commitment to Storage Canada. The commitment expires after one year, but may be renewed annually with the consent of both parties. The initial borrowing on the loan bears annual interest at 8.75% and has a maturity date of March 30, 2013. Any additional borrowings will mature seven years from the date of the subsequent borrowing. The Company also receives a fee of 0.25% on the unused portion of the loan. As of October 31, 2007, the outstanding balance of the loan commitment was $2.7 million. Net repayments during the three month period ended January 31, 2008 were $619,000 resulting in a balance of $2.0 million at such date.

On July 11, 2006, the Company provided Marine a $2.0 million secured revolving loan facility. The revolving loan facility bears annual interest at LIBOR plus 1%. The Company also receives a fee of 0.50% of the unused portion of the revolving loan facility. There was no amount outstanding on the revolving loan facility as of January 31, 2008.

On October 10, 2006, the Company agreed to guarantee a 375,000 Euro inventory financing facility for BENI, equivalent to approximately $556,430 at January 31, 2008.

On October 12, 2006, the Company provided a $12.0 million revolving credit facility to Octagon in replacement of the senior secured credit facility provided on May 7, 2004. This credit facility expires on December 31, 2011. The credit facility bears annual interest at LIBOR plus 4.25%. The Company receives a 0.50% unused facility fee on an annual basis and a 0.25% servicing fee on an annual basis for maintaining the credit facility. At October 31, 2007 the outstanding balance of the revolving credit facility provided to Octagon was $4.1 million. Net borrowings during the three month period ended January 31, 2008 were $5.7 million resulting in a balance outstanding of $9.8 million on that date.

On October 30, 2006, the Company provided Velocitius a $260,000 revolving line of credit (“Line I”). Line I expires on October 31, 2009 and bears annual interest at 8%. At October 31, 2007, the balance of the Line I was approximately $191,000. Net repayments during the three month period ended January 31, 2008 were approximately $191,000. As of January 31, 2008, there was no amount outstanding on Line I.

On January 9, 2007, the Company extended to Turf a $1.0 million secured junior revolving note. The note bears annual interest at 12.5% and expires on May 1, 2008. The Company also receives a fee of 0.25% of the unused portion of the note. On December 31, 2007, Turf borrowed $1.0 million from the secured junior revolving note. There was $1.0 million outstanding on the revolving note as of January 31, 2008.

On January 11, 2007, the Company provided a $4.0 million revolving credit facility to Harmony Pharmacy. The credit facility bears annual interest at 10%. The Company also receives a fee of 0.50% on the unused portion of the loan. The revolving credit facility expires on December 1, 2009. At October 31, 2007 and January 31, 2008, the outstanding balance of the revolving credit facility provided was $4.0 million.

On May 1, 2007, the Company provided Line II to Velocitius. Line II expires on April 30, 2010 and bears annual interest at 8%. At October 31, 2007 and January 31, 2008, there was approximately $613,000 outstanding.

On July 19, 2007, the Company agreed to guarantee a 1.4 million Euro mortgage for Tekers, equivalent to approximately $2.1 million at January 31, 2008.

On July 26, 2007, the Company provided a $10.0 million revolving credit facility and a $2.0 million junior revolver to U.S. Gas. The credit facility bears annual interest at LIBOR plus 6% and the revolver bears annual interest at 14%. The Company receives a fee of 0.50% on the unused portion of the credit facility and the revolver. The revolving credit facility and junior revolver expire on July 26, 2010. At October 31, 2007, there was approximately $85,000 outstanding on the revolving credit facility. Net borrowings during the three month period ended January 31, 2008 were $2.5 million resulting in a balance outstanding of $2.6 million at such date. There was no amount outstanding on the junior revolver as of October 31, 2007 and January 31, 2008.

On January 15, 2008, the Company agreed to guarantee a 6.5 million Euro mortgage for MVC Automotive, equivalent to approximately $9.6 million at January 31, 2008.

On January 16, 2008, the Company agreed to support a 4 million Euro mortgage for a Ford dealership owned and operated by MVC Automotive (equivalent to approximately $5.9 million at January 31, 2008) through making financing available to the dealership and agreeing under certain circumstances not to reduce its equity stake in MVC Automotive.

Timberland also has a floor plan financing program administered by Transamerica. As is typical in Timberland’s industry, under the terms of the dealer financing arrangement, Timberland guarantees the repurchase of product from Transamerica, if a dealer defaults on payment and the underlying assets are repossessed. The Company has agreed to be a limited co-guarantor for up to $500,000 on this repurchase commitment.

Commitments of the Company:

On February 16, 2005, the Company entered into a sublease (the “Sublease”) for a larger space in the building in which the Company’s current executive offices are located, which expired on February 28, 2007. Effective November 1, 2006, under the terms of the Investment Advisory and Management Agreement with TTG Advisers (the “Advisory Agreement”), TTG Advisers is responsible for providing office space to the Company and for the costs associated with providing such office space. The Company’s offices continue to be located on the second floor of 287 Bowman Avenue.

On April 27, 2006, the Company and MVCFS, as co-borrowers, entered into a new four-year, $100 million credit facility (the “Credit Facility”) with Guggenheim as administrative agent for the lenders. At October 31, 2007, there was $50.0 million in term debt and $30.0 million on the Credit Facility outstanding. During the three month period ended January 31, 2008, the Company’s net borrowings on the Credit Facility were $20.0 million. As of January 31, 2008, there was $50.0 million in term debt and $50.0 million outstanding on the revolving credit facility. The proceeds from borrowings made under the Credit Facility are used to fund new and existing portfolio investments, pay fees and expenses related to obtaining the financing and for general corporate purposes. The Credit Facility will expire on April 27, 2010, at which time all outstanding amounts under the Credit Facility will be due and payable. Borrowings under the Credit Facility will bear interest, at the Company’s option, at a floating rate equal to either (i) the LIBOR rate (for one, two, three or six months), plus a spread of 2.00% per annum, or (ii) the Prime rate in effect from time to time, plus a spread of 1.00% per annum. The Company paid a closing fee, legal and other costs associated with this transaction. These costs will be amortized evenly over the life of the facility. The prepaid expenses on the Balance Sheet include the unamortized portion of these costs. Borrowings under the Credit Facility will be secured, by among other things, cash, cash equivalents, debt investments, accounts receivable, equipment, instruments, general intangibles, the capital stock of MVCFS, and any proceeds from all the aforementioned items, as well as all other property except for equity investments made by the Company.

The Company enters into contracts with portfolio companies and other parties that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, the Company has not experienced claims or losses pursuant to these contracts and believes the risk of loss related to indemnifications to be remote.

7. Certain Issuances of Equity Securities by the Issuer

On February 28, 2007, the Company completed its public offering of 5,000,000 shares of the Company’s common stock at a price of $16.25 per share. On March 28, 2007, pursuant to the 30-day over-allotment option granted by the Company to the underwriters in connection with the offering, the underwriters purchased an additional 158,500 shares of common stock at the purchase price of $16.25 per share. The Company raised approximately $78.4 million in net proceeds after deducting the underwriting discount and commissions and estimated offering expenses. The Company expects to use the net proceeds of the offering to fund additional investments and for general corporate purposes, including the repayment of debt.

8. Management

On November 6, 2003, Michael Tokarz assumed his positions as Chairman, Portfolio Manager and Director of the Company. From November 6, 2003 to October 31, 2006, the Company was internally managed. The Company entered into the Advisory Agreement, effective November 1, 2006, which provides for the Company to be managed externally by TTG Advisers, which is controlled by Mr. Tokarz.

Under the terms of the Advisory Agreement, TTG Advisers determines, consistent with the Company’s investment strategy, the composition of the Company’s portfolio, the nature and timing of the changes to the Company’s portfolio and the manner of implementing such changes. TTG Advisers also identifies, and negotiates the structure of the Company’s investments (including performing due diligence on prospective portfolio companies), closes and monitors the Company’s investments, determines the securities and other assets purchased, retains or sells and oversees the administration, recordkeeping and compliance functions of the Company and/or third parties performing such functions for the Company. TTG Advisers’ services under the Advisory Agreement are not exclusive, and it may furnish similar services to other entities. Pursuant to the Advisory Agreement, the Company is required to pay TTG Advisers a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee. The base management fee is calculated at 2.0% per annum of the Company’s total assets excluding cash and the value of any investment by the Company not made in portfolio companies (“Non-Eligible Assets”) but including assets purchased with borrowed funds that are not Non-Eligible Assets. The incentive fee consists of two parts: (i) one part is based on our pre-incentive fee net operating income; and (ii) the other part is based on the capital gains realized on our portfolio of securities acquired after November 1, 2003. The Advisory Agreement provides for an expense cap pursuant to which TTG Advisers will absorb or reimburse operating expenses of the Company to the extent necessary to limit the Company’s expense ratio (the consolidated expenses of the Company, including any amounts payable to TTG Advisers under the base management fee, but excluding the amount of any interest and other direct borrowing costs, taxes, incentive compensation and extraordinary expenses taken as a percentage of the Company’s average net assets) to 3.25% in each of the 2007 and 2008 fiscal years. Please see Note 9 “Incentive Compensation” for more information.

9. Incentive Compensation

Effective November 1, 2006, Mr. Tokarz’s employment agreement with the Company terminated and the obligations under Mr. Tokarz’s agreement were superseded by those under the Advisory Agreement entered into with TTG Advisers. Pursuant to the Advisory Agreement, the Company pays an incentive fee to TTG Advisers which is generally: (i) 20% of pre-incentive fee net operating income and (ii) 20% of net realized capital gains less unrealized depreciation (on our portfolio securities acquired after November 1, 2003). TTG Advisers is entitled to an incentive fee with respect to our pre-incentive fee net operating income in each fiscal quarter as follows: no incentive fee in any fiscal quarter in which our pre-incentive fee net operating income does not exceed the hurdle rate of 1.75% of net assets, 100% of our pre-incentive fee net operating income with respect to that portion of such pre-incentive fee net operating income, if any, that exceeds the hurdle rate but is less than 2.1875% of net assets in any fiscal quarter and 20% of the amount of our pre-incentive fee net operating income,

if any, that exceeds 2.1875% of net assets in any fiscal quarter. Under the Advisory Agreement, the accrual of the provision for incentive compensation for net realized capital gains is consistent with the accrual that was required under the employment agreement with Mr. Tokarz.

Under internal management, Mr. Tokarz was entitled to compensation pursuant to his agreement with the Company, under which the Company was required to pay Mr. Tokarz incentive compensation in an amount equal to the lesser of (a) 20% of the net income of the Company for the fiscal year; or (b) the sum of (i) 20% of the net capital gains realized less unrealized depreciation by the Company in respect of the investments made during his tenure as Portfolio Manager; and (ii) the amount, if any, by which the Company’s total expenses for a fiscal year were less than two percent of the Company’s net assets (determined as of the last day of the period).

At October 31, 2007, the provision for estimated incentive compensation was $17,875,496. During the three month period ended January 31, 2008, this provision for incentive compensation was decreased by a net amount of $3,846,764 to $14,028,732. The amount of the provision reflects the Valuation Committee’s determination to increase the fair values of six of the Company’s portfolio investments (U.S. Gas, Vitality, Tekers, SGDA, Custom Alloy and Velocitius) by a total of $10.3 million. The net decrease in the provision for incentive compensation during the three month period ended January 31, 2008 was a result of the incentive compensation payment to TTG Advisers of $5.5 million due to the sale of Baltic Motors and BM Auto. Pursuant to the Advisory Agreement, incentive compensation payments will be made to TTG Advisers only upon the occurrence of a realization event (as defined under such agreement). On July 24, 2007, as discussed in “Realized Gains and Losses on Portfolio Securities, For the Fiscal Year Ended October 31, 2007,” the Company realized a gain of $66.5 million from the sale of Baltic Motors and BM Auto. This transaction triggered an incentive compensation payment obligation to TTG Advisers, which payment was not required to be made until the precise amount of the payment obligation was confirmed based on the Company’s completed audited financials for the fiscal year 2007. The payment obligation to TTG Advisers from this transaction totaled approximately $12.9 million (20% of the realized gain from the sale less unrealized depreciation on the portfolio). The remaining $7.4 million incentive compensation payment to TTG Advisers was paid on February 1, 2008. During the quarter ended January 31, 2008, there was no provision recorded for the net operating income portion of the incentive fee as pre-incentive fee net operating income did not exceed the hurdle rate.

10. Tax Matters

On October 31, 2007, the Company had a net capital loss carryforward of $6,623,425 remaining, of which $3,327,875 will expire in the year 2012 and $3,295,550 will expire in the year 2013. To the extent future capital gains are offset by capital loss carryforwards, such gains need not be distributed. As of October 31, 2007, the Company had net unrealized capital losses of $15,363,252. The gross unrealized capital losses totaled $50,618,032. The total net realized capital loss carryforwards and gross unrealized capital losses at October 31, 2007 were $57,241,457.

11. Dividends and Distributions to Shareholders

As a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), the Company is required to distribute to its shareholders, in a timely manner, at least 90% of its investment company taxable and tax-exempt income each year. If the Company distributes, in a calendar year, at least 98% of its ordinary income for such calendar year and its capital gain net income for the 12-month period ending on October 31 of such calendar year (as well as any portion of the respective 2% balances not distributed in the previous year), it will not be subject to the 4% non-deductible federal excise tax on certain undistributed income of RICs.

Dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends and capital gain distributions are generally declared and paid quarterly according to the Company’s policy established on

July 11, 2005. An additional distribution may be paid by the Company to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. Distributions can be made payable by the Company either in the form of a cash distribution or a stock dividend. The amount and character of income and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due primarily to differing treatments of income and gain on various investment securities held by the Company, timing differences and differing characterizations of distributions made by the Company. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications and may affect the allocation between net operating income, net realized gain (loss) and paid in capital.

For the Quarter Ended January 31, 2008

On December 20, 2007, the Company’s board of directors declared a dividend of $0.12 per share. The dividend was payable on January 9, 2008 to shareholders of record on December 31, 2007. The ex-dividend date was December 27, 2007. The total distribution amounted to $2,913,739, including distributions reinvested. In accordance with the Company’s dividend reinvestment plan (the “Plan”), Computershare Ltd., the Plan Agent, re-issued 15,930 shares of common stock from the Company’s treasury to shareholders participating in the Plan.

12. Segment Data

The Company’s reportable segments are its investing operations as a business development company, MVC Capital, Inc., and the financial advisory operations of its wholly-owned subsidiary, MVC Financial Services, Inc.

The following table presents book basis segment data for the three month period ended January 31, 2008:


	MVC		MVCFS		Consolidated

Interest and dividend income	$	7,326,584	$	55,224	$	7,381,808
Fee income		64,554		1,247,669		1,312,223
Other income		201,917		—		201,917
Total operating income		7,593,055		1,302,893		8,895,948

Total operating expenses		4,298,280		1,228,731		5,527,011

Net operating income before taxes		3,294,775		74,162		3,368,937
Tax expense		—		21,646		21,646
Net operating income		3,294,775		52,516		3,347,291
Net realized gain on investments and foreign currency		656,418		—		656,418
Net change in unrealized appreciation on investments		16,809,199		—		16,809,199
Net increase in net assets resulting from operations		20,760,392		52,516		20,812,908

In all periods prior to July 16, 2004, all business was conducted through MVC Capital, Inc. With the externalization of the Company’s management on November 1, 2006, separate invoices are now sent to MVC Capital and MVCFS for the quarterly base management fee due to TTG Advisers.

13. Subsequent Events

Since January 31, 2008, net repayments on the U.S. Gas revolving credit facility were approximately $350,000.

Since January 31, 2008, the Company invested an additional $150,000 in Harmony’s demand note.

Since January 31, 2008, net repayments on the Octagon revolving credit facility were $5.1 million.

On February 1, 2008, the Company repaid $50.0 million on its Credit Facility.

On February 1, 2008, the Company paid to TTG Advisers the remaining incentive compensation payment of $7.4 million from the sale of Baltic Motors and BM Auto.

On February 1, 2008, Innovative Brands made a principal payment of $1.7 million on its term loan.

On February 29, 2008, the Company invested an additional $7.8 million in Summit in the form of a $3.0 million second lien loan and $4.8 million of common stock.

On February 29, 2008, the Company sold 400 shares of WBS at cost for $1.6 million.

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

This report contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company and its investment portfolio companies. Words such as may, will, expect, believe, anticipate, intend, could, estimate, might and continue, and the negative or other variations thereof or comparable terminology, are intended to identify forward-looking statements. Forward-looking statements are included in this report pursuant to the “Safe Harbor” provision of the Private Securities Litigation Reform Act of 1995. Such statements are predictions only, and the actual events or results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those relating to investment capital demand, pricing, market acceptance, the effect of economic conditions, litigation and the effect of regulatory proceedings, competitive forces, the results of financing and investing efforts, the ability to complete transactions and other risks identified below or in the Company’s filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. The following analysis of the financial condition and results of operations of the Company should be read in conjunction with the Financial Statements, the Notes thereto and the other financial information included elsewhere in this report.

SELECTED CONSOLIDATED FINANCIAL DATA:

Financial information for the fiscal year ended October 31, 2007 is derived from the consolidated financial statements, which have been audited by Ernst & Young LLP, the Company’s independent registered public accountants. Quarterly financial information is derived from unaudited financial data, but in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments), which are necessary to present fairly the results for such interim periods.

Selected Consolidated Financial Data


	Quarter Ended		Quarter Ended			Year Ended
	January 31,		January 31,			October 31,
	2008		2007			2007
	(Unaudited)		(Unaudited)
	(In thousands, except per share data)

Operating Data:
Interest and related portfolio income:
Interest and dividend income	$	7,382	$	4,728		$	22,826
Fee income		1,312		657			3,750
Other income		202		24			374


Total operating income		8,896		5,409			26,950

Expenses:
Incentive compensation (Note 9)		1,657		3,526			10,813
Administrative		681		670			2,559
Interest, fees and other borrowing costs		1,171		1,128			4,859
Management fee		2,018		1,635			7,034


Total operating expenses		5,527		6,959			25,265


Net operating income (loss) before taxes		3,369		(1,550	)		1,685

Tax expense (benefit), net		22		20			(375	)


Net operating income (loss)		3,347		(1,570	)		2,060

Net realized and unrealized gains (losses):
Net realized gains		657		4			66,944
Net change in unrealized appreciation (depreciation)		16,809		20,643			(3,302	)


Net realized and unrealized gains on investments		17,466		20,647			63,642


Net increase in net assets resulting from operations	$	20,813	$	19,077		$	65,702


Per Share:
Net increase in net assets per share resulting from operations	$	0.86	$	1.00		$	2.92
Dividends per share	$	0.12	$	0.18		$	0.54
Balance Sheet Data:
Portfolio at value	$	397,258	$	313,227		$	379,168
Portfolio at cost		394,710		303,544			393,428
Total assets		504,895		366,239			470,491
Shareholders’ equity		387,501		252,710			369,097
Shareholders’ equity per share (net asset value)	$	15.95	$	13.23		$	15.21
Common shares outstanding at period end		24,297		19,099			24,265
Other Data:
Number of Investments funded in period		5		9			26
Investments funded ($) in period	$	65,967	$	23,761		$	167,134


	2008		2007											2006
	Qtr 1		Qtr 4		Qtr 3			Qtr 2			Qtr 1			Qtr 4		Qtr 3		Qtr 2			Qtr 1
	(In thousands, except per share data)
Quarterly Data (Unaudited):

Total operating income		8,896		8,438		7,030			6,073			5,409			6,104		4,607		3,915			3,882

Incentive compensation		1,657		771		1,618			4,898			3,526			1,338		1,161		2,005			1,551
Interest, fees and other borrowing costs		1,171		1,223		1,252			1,256			1,128			910		636		39			9
Management fee		2,018		1,929		1,616			1,854			1,635			—		—		—			—
Other expenses		681		630		608			652			669			2,117		1,676		1,739			1,387
Tax expense (benefit)		22		77		(78	)		(394	)		20			16		62		(24	)		105
Net operating income (loss) before net realized and unrealized gains		3,347		3,808		2,014			(2,193	)		(1,569	)		1,723		1,072		156			830
Net increase in net assets resulting from operations		20,813		8,514		13,788			24,323			19,077			15,866		8,046		11,117			12,307
Net increase in net assets resulting from operations per share		0.86		0.35		0.57			1.00			1.00			0.83		0.42		0.58			0.65
Net asset value per share		15.95		15.21		14.98			14.53			13.23			12.41		11.70		11.40			10.94


(1)		Fiscal Year 2006, the Company was internally managed. During the period, other expenses also included employee compensation and facilities costs.

OVERVIEW

The Company is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company under the 1940 Act. The Company’s investment objective is to seek to maximize total return from capital appreciation and/or income.

On November 6, 2003, Mr. Tokarz assumed his positions as Chairman and Portfolio Manager of the Company. He and the Company’s investment professionals (who, effective November 1, 2006, provide their services to the Company through the Company’s investment adviser, TTG Advisers) are seeking to implement our investment objective (i.e., to maximize total return from capital appreciation and/or income) through making a broad range of private investments in a variety of industries.

The investments can include senior or subordinated loans, convertible debt and convertible preferred securities, common or preferred stock, equity interests, warrants or rights to acquire equity interests, and other private equity transactions. During the year ended October 31, 2007, the Company made ten new investments and 16 follow-on investments in existing portfolio companies, committing capital totaling approximately $167.1 million pursuant to our current investment objective. During the three month period ended January 31, 2008, the Company made two new investments and three additional investments in existing portfolio companies, committing capital totaling approximately $66.0 million.

Prior to the adoption of our current investment objective, the Company’s investment objective had been to achieve long-term capital appreciation from venture capital investments in information technology companies. The Company’s investments had thus previously focused on investments in equity and debt securities of information technology companies. As of January 31, 2008, 4.58% of the current fair value of our assets consisted of Legacy Investments. We are, however, seeking to manage these Legacy Investments to try and realize maximum returns. We generally seek to capitalize on opportunities to realize cash returns on these investments when presented with a potential “liquidity event,” i.e., a sale, public offering, merger or other reorganization.

Our new portfolio investments are made pursuant to our current objective and strategy. We are concentrating our investment efforts on small and middle-market companies that, in our view, provide opportunities to maximize total return from capital appreciation and/or income. Under our investment approach, we are permitted to invest, without limit, in any one portfolio company, subject to any diversification limits required in order for us to continue to qualify as a RIC under Subchapter M of the Code.

We participate in the private equity business generally by providing privately negotiated long-term equity and/or debt investment capital to small and middle-market companies. Our financing is generally used to fund growth, buyouts, acquisitions, recapitalizations, note purchases, and/or bridge financings. We generally invest in private companies, though, from time to time, we may invest in public companies that may lack adequate access to public capital.

We may also seek to achieve our investment objective by establishing a subsidiary or subsidiaries that would serve as a general partner or managing member to a private equity or other investment vehicle(s). In fact, during fiscal year 2006, we established MVC Partners for this purpose. Additionally, we may also acquire a portfolio of existing private equity or debt investments held by financial institutions or other investment funds should such opportunities arise.

OPERATING INCOME

For the Quarters Ended January 31, 2008 and 2007. Total operating income was $8.9 million for the quarter ended January 31, 2008 and $5.4 million for the quarter ended January 31, 2007, an increase of $3.5 million.

For the Quarter Ended January 31, 2008

Total operating income was $8.9 million for the quarter ended January 31, 2008. The increase in operating income over the same period last year was primarily due to the increase in the number of investments that provide the Company with current income. The main components of investment income were the interest earned on loans and dividend income from portfolio companies and the receipt of closing and monitoring fees from certain portfolio companies by the Company and MVCFS. The Company earned approximately $7.0 million in interest and dividend income from investments in portfolio companies. Of the $7.0 million recorded in interest/dividend income, approximately $1.4 million was “payment in kind” interest/dividends. The “payment in kind” interest/dividends are computed at the contractual rate specified in each investment agreement and added to the principal balance of each investment. The Company’s debt investments yielded rates from 5% to 17%. Also, the Company earned approximately $372,000 in interest income on its cash equivalents and short-term investments. The Company received fee income and other income from portfolio companies and other entities totaling approximately $1.3 million and $202,000, respectively.

For the Quarter Ended January 31, 2007

Total operating income was $5.4 million for the quarter ended January 31, 2007. The $1.2 million increase in operating income, compared to the quarter ended January 31, 2006, was primarily due to the increase in the number of investments that provide the Company with current income. The main components of investment income were the interest and dividend income earned on loans to portfolio companies and the receipt of closing and monitoring fees from certain portfolio companies by the Company and MVCFS. The Company earned approximately $4.7 million in interest and dividend income from investments in portfolio companies. Of the $4.7 million recorded in interest/dividend income, approximately $763,000 was “payment in kind” interest/dividends. The “payment in kind” interest/dividends are computed at the contractual rate specified in each investment agreement and added to the principal balance of each investment. The Company’s debt investments yielded rates from 0% to 17%. Also, the Company earned approximately $75,000 in interest income on its cash equivalents and short-term investments. The Company received fee income and other income from portfolio companies and other entities totaling approximately $657,000 and $24,000, respectively.

OPERATING EXPENSES

For Quarters Ended January 31, 2008 and 2007. Operating expenses were $5.5 million for the quarter ended January 31, 2008 and $7.0 million for the quarter ended January 31, 2007, a decrease of $1.5 million.

For the Quarter Ended January 31, 2008

Operating expenses were $5.5 million or 5.87% of the Company’s average net assets, when annualized, for the quarter ended January 31, 2008. Significant components of operating expenses for the quarter ended January 31, 2008, included the management fee of $2.0 million, the estimated provision for incentive compensation

expense of approximately $1.7 million, and interest expense and other borrowing costs of $1.2 million. The estimated provision for incentive compensation expense is a non-cash, not yet payable, provisional expense relating to the Advisory Agreement.

The $1.5 million decrease in the Company’s operating expenses for the quarter ended January 31, 2008 compared to the quarter ended January 31, 2007, was primarily due to the $1.9 million decrease in the provision for estimated incentive compensation and the approximately $400,000 increase in the management fee expense. It should be noted, in this regard, that the Advisory Agreement provides for an expense cap pursuant to which TTG Advisers will absorb or reimburse operating expenses of the Company to the extent necessary to limit the Company’s expense ratio (the consolidated expenses of the Company, including any amounts payable to TTG Advisers under the base management fee, but excluding the amount of any interest and other direct borrowing costs, taxes, incentive compensation and extraordinary expenses taken as a percentage of the Company’s average net assets) to 3.25% in each of the 2007 and 2008 fiscal years. In fiscal year 2006, when the Company was still internally managed and not subject to the expense cap, the expense ratio was 3.22% (taking into account the same carve outs as those applicable to the expense cap). For fiscal year 2007, the expense ratio was 3.0% (taking into account the same carve outs as those applicable to the expense cap).

Pursuant to the terms of the Advisory Agreement, during the three month period ended January 31, 2008, the incentive compensation provision was decreased by a net amount of $3,846,764 to $14,028,732. The amount of the provision reflects the Valuation Committee’s determination to increase the fair values of six of the Company’s portfolio investments: U.S. Gas, Vitality, Tekers, SGDA, Custom Alloy and Velocitius by a total of $10.3 million. The net decrease in the provision for incentive compensation during the three month period ended January 31, 2008 was a result of the incentive compensation payment to TTG Advisers of $5.5 million due to the sale of Baltic Motors and BM Auto. The payment obligation to TTG Advisers from the Baltic Motors and BM Auto transaction totaled approximately $12.9 million (20% of the realized gain from the sale less unrealized depreciation on the portfolio). The remaining $7.4 million incentive compensation payment to TTG Advisers was paid on February 1, 2008. Pursuant to the Advisory Agreement, incentive compensation payments will be made only upon the occurrence of a realization event (such as the sale of shares of Baltic Motors and BM Auto). Without this reserve for incentive compensation, operating expenses would have been approximately $3.9 million or 4.12% of average net assets when annualized as compared to 5.87%, which is reported on the Consolidated Per Share Data and Ratios, for the quarter ended January 31, 2008. During the quarter ended January 31, 2008, there was no provision recorded for the net operating income portion of the incentive fee as pre-incentive fee net operating income did not exceed the hurdle rate. Please see Note 9 “Incentive Compensation” for more information.

In February 2008, the Company renewed its Directors & Officers/Professional Liability Insurance policies at an annual premium expense of approximately $362,000, which is amortized over the twelve month life of the policy. The prior policy premium was $381,000.

For the Quarter Ended January 31, 2007

Operating expenses were $7.0 million or 11.48% of the Company’s average net assets, when annualized, for the three month period ended January 31, 2007. Significant components of operating expenses for the quarter ended January 31, 2007, included estimated provision for incentive compensation expense of approximately $3.5 million, management fees of $1.6 million, and interest expense and other borrowing costs of $1.1 million. Estimated provision for incentive compensation expense is a non-cash, not yet payable, provisional expense relating to the Advisory Agreement.

The $4.1 million increase in the Company’s operating expenses in the three month period ended January 31, 2007 compared to the three month period ended January 31, 2006, was primarily due to the $2.0 million increase in the provision for estimated incentive compensation, the $1.1 million increase in the Company’s interest expense and other borrowings, and the $818,877 increase in the management fee expense compared to the facilities and employee compensation and benefits expense incurred when the Company was internally managed. The $818,877 increase is in part due to the externalization of management to TTG Advisers.

However, the management fee expense increased by only $260,000 when compared to the employee compensation and benefits and facilities expense for the quarter ended October 31, 2006. It should be noted, in this regard, that the Advisory Agreement provides for an expense cap pursuant to which TTG Advisers will absorb or reimburse operating expenses of the Company to the extent necessary to limit the Company’s expense ratio (the consolidated expenses of the Company, including any amounts payable to TTG Advisers under the base management fee, but excluding the amount of any interest and other direct borrowing costs, taxes, incentive compensation and extraordinary expenses taken as a percentage of the Company’s average net assets) to 3.25% in each of the 2007 and 2008 fiscal years. In fiscal year 2006, when the Company was still internally managed and not subject to the expense cap, the expense ratio was 3.22% (taking into account the same carve outs as those applicable to the expense cap).

Pursuant to the terms of the Company’s agreement with TTG Advisers, during the three month period ended January 31, 2007, the provision for incentive compensation was increased by $3,525,967. The increase in the provision for incentive compensation resulted from the determination of the Valuation Committee to increase the fair value of six of the Company’s portfolio investments: Baltic Motors, Dakota Growers, Octagon, BM Auto, SGDA, and Vitality which are subject to the Company’s agreement with TTG Advisers, by a total of $17,270,586. This reserve balance of $10,588,101 will remain unpaid until net capital gains are realized, if ever, by the Company. Pursuant to the Advisory Agreement, only after a realization event may the incentive compensation be paid. Without this reserve for incentive compensation, operating expenses would have been approximately $3.4 million or 5.66% of average net assets when annualized as compared to 11.48% which is reported on the Consolidated Per Share Data and Ratios, for the three month period ended January 31, 2007. Please see Note 8 “Incentive Compensation” for more information.

In February 2007, the Company renewed its Directors & Officers/Professional Liability Insurance policies at an expense of approximately $381,000 which is amortized over the twelve month life of the policy. The prior policy premium was $459,000.

REALIZED GAINS AND LOSSES ON PORTFOLIO SECURITIES

For the Quarters Ended January 31, 2008 and 2007. Net realized gains for the quarter ended January 31, 2008 were $656,418 and $3,968 for the quarter ended January 31, 2007, an increase of $652,450.

For the Quarter Ended January 31, 2008

Net realized gains for the quarter ended January 31, 2008 were $656,418. The significant component of the Company’s net realized gains for the quarter ended January 31, 2008 was primarily due to the gain on the sale of Genevac common stock. On January 2, 2008, Genevac repaid its senior subordinated loan in full including all accrued interest. The total amount received was $11.9 million. The Company, at this time, sold 140 shares of Genevac common stock for $1.7 million, resulting in a capital gain of $595,000.

The Company also realized a gain on foreign currency of approximately $60,000.

For the Quarter Ended January 31, 2007

Net realized gains for the quarter ended January 31, 2007 were $3,968. The significant component of the Company’s net realized gains for the quarter ended January 31, 2007 was a realized gain from the final escrow distribution from Sygate Technologies, Inc. (Sygate).

UNREALIZED APPRECIATION AND DEPRECIATION OF PORTFOLIO SECURITIES

For the Quarters Ended January 31, 2008 and 2007. The Company had a net change in unrealized appreciation on portfolio investments of $16.8 million for the quarter ended January 31, 2008 and $20.6 million for the quarter ended January 31, 2007.

For the Quarter Ended January 31, 2008

The Company had a net change in unrealized appreciation on portfolio investments of $16.8 million for the quarter ended January 31, 2008. The change in unrealized appreciation on investment transactions for the quarter ended January 31, 2008 primarily resulted from the Valuation Committee’s decision to increase the fair value of the Company’s investments in U.S. Gas preferred stock by $2.2 million, SGDA preferred equity interest by $125,000, Foliofn preferred stock by $6.0 million, Tekers common stock by $100,000, Custom Alloy preferred stock by $5.0 million, Velocitius equity interest by $2.7 million, and the Vitality by approximately $200,000.

For the Quarter Ended January 31, 2007

The Company had a net change in unrealized appreciation on portfolio investments of $20.6 million for the quarter ended January 31, 2007. The change in unrealized appreciation on investment transactions for the quarter ended January 31, 2007 primarily resulted from the Valuation Committee’s decision to increase the fair value of the Company’s investments in Baltic Motors common stock by approximately $9.4 million, Dakota Growers common stock by approximately $1.9 million, Octagon’s membership interest by approximately $1.2 million, BM Auto common stock by $4.7 million, SGDA common equity interest by approximately $121,000, and Vendio preferred stock by $3.2 million.

PORTFOLIO INVESTMENTS

For the Quarter Ended January 31, 2008 and the Year Ended October 31, 2007. The cost of the portfolio investments held by the Company at January 31, 2008 and at October 31, 2007 was $394.7 million and $393.4 million, respectively, an increase of $1.3 million. The aggregate fair value of portfolio investments at January 31, 2008 and at October 31, 2007 was $397.3 million and $379.2 million, respectively, an increase of $18.1 million. The cost and aggregate fair value of cash and cash equivalents held by the Company at January 31, 2008 and at October 31, 2007 was $101.4 million and $84.7, respectively, an increase of approximately $16.7 million.

For the Quarter Ended January 31, 2008

During the quarter ended January 31, 2008, the Company made two new investments, committing capital totaling approximately $24.8 million. The investments were made in SP ($24.0 million) and SGDA Europe ($750,000).

The Company also made three follow-on investments in existing portfolio companies committing capital totaling approximately $41.2 million. During the quarter ending January 31, 2008, the Company made additional investments totaling approximately $217,000 in MVC Partners. In connection with these investments, MVC Partners has made an investment in MVC Acquisition Corp., a newly-formed blank check company organized for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. We have agreed to serve as the corporate sponsor of MVC Acquisition Corp. Michael Tokarz, our Chairman and Portfolio Manager and the Manager of TTG Advisers, and Peter Seidenberg, our Chief Financial Officer, currently serve as Chairman of the Board and Chief Financial Officer, respectively, for MVC Acquisition Corp. In connection with our sponsorship of MVC Acquisition Corp., we have agreed to purchase, through MVC Partners, an aggregate of $5,000,000 of warrants from MVC Acquisition Corp. concurrent with the consummation of its initial public offering. On November 26, 2007 and December 20, 2007, the Company made additional investments of $500,000 in Harmony Pharmacy in the form of a $1.0 million demand note. The demand note has an annual interest rate of 10%. On November 30, 2007, the Company invested an additional $36.7 million in Ohio Medical in the form of a $10.0 million senior subordinated note and $26.7 million in 9,917 shares of convertible preferred stock. At this time, the $3.3

million convertible unsecured subordinated promissory note was converted into preferred stock for a total investment in Ohio Medical of $40.0 million. The note has an annual interest rate of 16% and a maturity date of May 30, 2012. On December 13, 2007, the Company assigned the Ohio Medical $10.0 million senior subordinated note to AEA Investors LLC.

At the beginning of the 2008 fiscal year, the junior revolving note provided to Timberland had a balance outstanding of $4.0 million. On January 25, 2008, the amount available on the revolving note was increased by $1.0 million to $5.0 million. Net borrowings during the three month period ended January 31, 2008 were $1.0 million resulting in a balance as of January 31, 2008 of $5.0 million.

At October 31, 2007, the balance of the revolving credit facility provided to Octagon was $4.1 million. Net borrowings during the three month period ended January 31, 2008 were $5.7 million resulting in a balance outstanding as of January 31, 2008 of approximately $9.8 million.

At October 31, 2007, the balance of the Line I provided to Velocitius was approximately $191,000. Net repayments during the three month period ended January 31, 2008 were approximately $191,000. As of January 31, 2008, there was no amount outstanding on Line I.

At October 31, 2007, the balance of the Line II provided to Velocitius was approximately $613,000. As of January 31, 2008, there was approximately $613,000 outstanding on Line II.

At October 31, 2007, the balance of the revolving credit facility provided to U.S. Gas was approximately $85,000. Net borrowings during the three month period ended January 31, 2008 were $2.5 million resulting in a balance outstanding as of January 31, 2008 of approximately $2.6 million.

On November 1, 2007, December 1, 2007, and January 1, 2008, the Company received $111,111, respectively, principal payments from SP on term loan B.

On November 2, 2007, Genevac made a principal payment of $1.0 million on its senior subordinated loan.

On December 21, 2007, Storage Canada repaid a portion of its term loan. Total amount received including accrued interest was approximately $622,000.

On December 31, 2007, the Company received a quarterly principal payment from BP on term loan A of $90,000.

On December 31, 2007, Total Safety made a principal payment of $2,500 on its first lien loan.

On December 31, 2007, Turf borrowed $1.0 million from the secured junior revolving note, which was the amount outstanding as of January 31, 2008.

On January 2, 2008, the Company received a principal payment of $37,500 on the term loan provided to Innovative Brands.

On January 15, 2008, Impact repaid its promissory note and senior subordinated loan in full including all accrued interest. The total amounts received for the promissory note and the senior subordinated loan were approximately $331,000 and $5.8 million, respectively. The Company, at this time, sold 252 shares of common stock at cost for $2.7 million.

On January 29, 2008, MVC Automotive made a principal payment of $17.4 million on its bridge loan, resulting in a principal balance of $1.6 million as of January 31, 2008.

During the three month period ended January 31, 2008, the Valuation Committee increased the fair value of the Company’s investments in U.S. Gas preferred stock by $2.2 million, SGDA preferred equity interest by $125,000, Foliofn preferred stock by $6.0 million, Tekers common stock by $100,000, Custom Alloy preferred stock by $5.0 million, Velocitius equity interest by $2.7 million, and Vitality by approximately $200,000. In addition, increases in the cost basis and fair value of the loans to JDC, SP, Timberland, Amersham, Marine, BP, Summit, U.S. Gas, WBS, Custom Alloy and the Vitality and Marine preferred stock were due to the capitalization of PIK interest/dividends totaling $1,396,837. Also, during the three month period ended January 31, 2008, the undistributed allocation of flow through income from the Company’s equity investment in Octagon increased the cost basis and fair value of the Company’s investment by approximately $52,000.

At January 31, 2008, the fair value of all portfolio investments was $397.3 million with a cost basis of $394.7 million. At January 31, 2008, the fair value and cost basis of Legacy Investments was $23.1 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $374.2 million and $338.8 million, respectively. At October 31, 2007, the fair value of all portfolio investments was $379.2 million with a cost basis of $393.4 million. At October 31, 2007, the fair value and cost basis of Legacy Investments was $17.1 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $362.1 million and $337.5 million, respectively.

For the Year Ended October 31, 2007

During the fiscal year ended October 31, 2007, the Company made ten new investments, committing capital totaling approximately $117.3 million. The investments were made in WBS ($3.2 million), HuaMei ($200,000), Levlad ($10.1 million), Total Safety ($4.5 million), MVC Partners ($71,000), Genevac ($14.0 million), Tekers ($2.3 million), U.S. Gas ($18.9 million), Custom Alloy ($24.0 million), and MVC Automotive ($40.0 million).

Motors a $5.5 million bridge loan. On May 9, 2007, the Company purchased 1.0 million shares of Dakota Growers preferred stock at a cost of $10.0 million. At that time, 65,000 shares of Dakota Growers common stock were converted to 65,000 shares of convertible preferred stock. On June 19, 2007, the Company increased the bridge loan to BENI to $2.0 million. The remaining available amount of $1.7 million was immediately drawn. On July 30, 2007, the Company provided Ohio Medical a $2.0 million convertible unsecured promissory note. On August 20, 2007, the Company contributed an additional $45,000 to MVC Partners, increasing the Company’s limited liability interest. On September 27, 2007, the Company invested an additional $1.25 million in Ohio Medical by increasing the convertible unsecured promissory note to $3.25 million.

On December 1, 2006, the Company received a principal payment of approximately $100,000 from Vestal on its senior subordinated debt. As of October 31, 2007, the balance of the loan was $700,000.