GLADSTONE CAPITAL CORP (Form: 10-Q, Received: 05/03/2022 16:01:18)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one):


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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022


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

FOR THE TRANSITION PERIOD FROM ______ TO _______

COMMISSION FILE NUMBER: 814-00237

GLADSTONE CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)


MARYLAND			54-2040781
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1521 WESTBRANCH DRIVE, SUITE 100			22102
MCLEAN, VIRGINIA			(Zip Code)
(Address of principal executive office)

(703) 287-5800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year,

if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value per share

GLAD

The Nasdaq Global Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

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 ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o No o

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


Large accelerated filer o			Accelerated filer o
Non-accelerated filer ý			Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

The number of shares of the issuer’s common stock, $0.001 par value per share, outstanding as of May 2, 2022 was 34,304,371.

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GLADSTONE CAPITAL CORPORATION

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Assets and Liabilities as of March 31 , 202 2 and September 30, 2021	2
	Consolidated Statements of Operations for the three and six months ended March 31, 202 2 and 2021	3
	Consolidated Statements of Changes in Net Assets for the six months ended March 31 , 202 2 and 2021	4
	Consolidated Statements of Cash Flows for the six months ended March 31 , 202 2 and 2021	5
	Consolidated Schedules of Investments as of March 31, 202 2 and September 30, 2021	6
	Notes to Consolidated Financial Statements	16

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
	Overview	40
	Results of Operations	45
	Liquidity and Capital Resources	53

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59

Item 4.	Controls and Procedures	60

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	61

Item 1A.	Risk Factors	61

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

Item 3.	Defaults Upon Senior Securities	61

Item 4.	Mine Safety Disclosures	61

Item 5.	Other Information	61

Item 6.	Exhibits	61

SIGNATURES		63

Table of Contents

Part I. Financial information

Item I Financial Statements (Unaudited)

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	March 31, 2022		September 30, 2021
ASSETS
Investments, at fair value:
Non-Control/Non-Affiliate investments (Cost of $449,787 and $447,566, respectively)	$	460,391	$	454,601
Affiliate investments (Cost of $46,106 and $70,682, respectively)	39,883		82,281
Control investments (Cost of $41,572 and $28,264, respectively)	37,429		20,730
Cash and cash equivalents	1,432		671
Restricted cash and cash equivalents	212		175
Interest receivable, net	2,906		2,361
Due from administrative agent	2,341		2,951
Deferred financing costs, net	783		1,033
Other assets, net	2,962		1,697
TOTAL ASSETS	$	548,339	$	566,500
LIABILITIES
Borrowings, at fair value (Cost of $17,400 and $50,500, respectively)	$	17,400	$	50,500
Notes payable, net of unamortized deferred financing costs of $2,664 and $2,202, respectively	197,336		186,611
Accounts payable and accrued expenses	541		490
Interest payable	2,203		1,797
Fees due to Adviser(A)	3,198		2,255
Fee due to Administrator(A)	579		382
Other liabilities	1,615		6,026
TOTAL LIABILITIES	$	222,872	$	248,061
Commitments and contingencies(B)
NET ASSETS
Common stock, $0.001 par value per share, 44,560,000 and 44,560,000 shares authorized, respectively, and 34,304,371 and 34,304,371 shares issued and outstanding, respectively	$	34	$	34
Capital in excess of par value	392,494		392,494
Cumulative net unrealized appreciation (depreciation) of investments	238		11,100
Under (over) distributed net investment income	933		149
Accumulated net realized losses	(68,232)		(85,338)
Total distributable loss	(67,061)		(74,089)
TOTAL NET ASSETS	$	325,467	$	318,439
NET ASSET VALUE PER COMMON SHARE	$	9.49	$	9.28

(A)Refer to Note 4—Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

(B)Refer to Note 9—Commitments and Contingencies in the accompanying Notes to Consolidated Financial Statements for additional information.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

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GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
INVESTMENT INCOME
Interest income
Non-Control/Non-Affiliate investments	$	10,614	$	9,967	$	20,768	$	20,189
Affiliate investments	739		1,064		1,806		1,974
Control investments	695		410		1,203		825
Cash and cash equivalents	—		—		—		—
Total interest income (excluding PIK interest income)	12,048		11,441		23,777		22,988
PIK interest income
Non-Control/Non-Affiliate investments	914		445		2,051		980
Total PIK interest income	914		445		2,051		980
Total interest income	12,962		11,886		25,828		23,968
Success fee income
Non-Control/Non-Affiliate Investments	3,231		—		3,231		—
Affiliate Investments	—		—		1,563		—
Total success fee income	3,231		—		4,794		—
Dividend income
Non-Control/Non-Affiliate investments	517		209		1,509		575
Control investments	520		30		589		252
Total dividend income	1,037		239		2,098		827
Prepayment fee income
Non-Control/Non-Affiliate investments	—		700		605		900
Affiliate Investments	—		—		44		—
Total prepayment fee income	—		700		649		900
Other income	30		60		58		72
Total investment income	17,260		12,885		33,427		25,767
EXPENSES
Base management fee(A)	2,479		2,095		4,999		4,097
Loan servicing fee(A)	1,520		1,396		2,982		2,744
Incentive fee(A)	1,971		1,381		4,062		2,748
Administration fee(A)	401		332		780		687
Interest expense on borrowings and notes payable	3,020		2,822		6,027		5,390
Amortization of deferred financing costs	274		338		563		756
Professional fees	207		160		471		378
Other general and administrative expenses	315		238		699		562
Expenses, before credits from Adviser	10,187		8,762		20,583		17,362
Credit to base management fee - loan servicing fee(A)	(1,520)		(1,396)		(2,982)		(2,744)
Credits to fees from Adviser - other(A)	(102)		(880)		(2,029)		(1,530)
Total expenses, net of credits	8,565		6,486		15,572		13,088
NET INVESTMENT INCOME	8,695		6,399		17,855		12,679
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss):
Non-Control/Non-Affiliate investments	—		63		472		(2,080)
Affiliate investments	—		—		13,408		—
Control investments	—		—		—		(1)
Other	233		(1,152)		(467)		(1,160)
Total net realized gain (loss)	233		(1,089)		13,413		(3,241)
Net unrealized appreciation (depreciation):
Non-Control/Non-Affiliate investments	(1,083)		13,963		3,569		21,850
Affiliate investments	(2,795)		724		(17,822)		629
Control investments	3,253		1,322		3,391		2,025
Other	—		(20)		—		(340)
Total net unrealized appreciation (depreciation)	(625)		15,989		(10,862)		24,164
Net realized and unrealized gain (loss)	(392)		14,900		2,551		20,923
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	8,303	$	21,299	$	20,406	$	33,602
BASIC AND DILUTED PER COMMON SHARE:
Net investment income	$	0.25	$	0.20	$	0.52	$	0.39
Net increase (decrease) in net assets resulting from operations	$	0.24	$	0.65	$	0.59	$	1.03
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic and Diluted	34,304,371		32,765,980		34,304,371		32,428,089

(A) Refer to Note 4—Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

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GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


	2022		2021
NET ASSETS, SEPTEMBER 30	$	318,439	$	233,743
OPERATIONS
Net investment income	9,160		6,280
Net realized gain (loss) on investments	13,880		(2,144)
Net realized gain (loss) on other	(700)		(8)
Net unrealized appreciation (depreciation) of investments	(10,237)		8,495
Net unrealized depreciation (appreciation) of other	—		(320)
Net increase (decrease) in net assets resulting from operations	12,103		12,303
DISTRIBUTIONS
Distributions to common stockholders from net investment income ($0.20 per share and $0.19 per share, respectively)(A)	(6,689)		(6,100)
Distributions to common stockholders from return of capital ($0.00 per share and $0.01 per share, respectively)(A)	—		(180)
Net decrease in net assets from distributions	(6,689)		(6,280)
CAPITAL TRANSACTIONS
Issuance of common stock	—		7,491
Discounts, commissions and offering costs for issuance of common stock	—		(140)
Net increase (decrease) in net assets resulting from capital transactions	—		7,351
NET INCREASE (DECREASE) IN NET ASSETS	5,414		13,374
NET ASSETS, DECEMBER 31	$	323,853	$	247,117
OPERATIONS
Net investment income	8,695		6,399
Net realized gain (loss) on investments	—		63
Net realized gain (loss) on other	233		(1,152)
Net unrealized appreciation (depreciation) of investments	(625)		16,009
Net unrealized depreciation (appreciation) of other	—		(20)
Net increase (decrease) in net assets resulting from operations	8,303		21,299
DISTRIBUTIONS
Distributions to common stockholders from net investment income ($0.20 per share and $0.18 per share, respectively)(A)	(6,689)		(5,714)
Distributions to common stockholders from return of capital ($0.00 per share and $0.02 per share, respectively)(A)	—		(685)
Net decrease in net assets from distributions	(6,689)		(6,399)
CAPITAL TRANSACTIONS
Issuance of common stock	—		9,037
Discounts, commissions and offering costs for issuance of common stock	—		(166)
Net increase (decrease) in net assets resulting from capital transactions	—		8,871
NET INCREASE (DECREASE) IN NET ASSETS	1,614		23,771
NET ASSETS, MARCH 31	$	325,467	$	270,888

(A)Refer to Note 8 – Distributions to Common Stockholders in the accompanying Notes to Consolidated Financial Statements for additional information.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

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GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


	Six Months Ended March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in net assets resulting from operations	$	20,406	$	33,602
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchase of investments	(121,569)		(101,098)
Principal repayments on investments	130,600		78,456
Net proceeds from sale of investments	16,922		3,690
Increase in investments due to PIK interest or other	(2,614)		(1,081)
Net change in premiums, discounts and amortization	(547)		181
Net realized loss (gain) on investments	(13,880)		2,081
Net realized loss (gain) on other	467		1,160
Net unrealized depreciation (appreciation) of investments	10,862		(24,504)
Net unrealized appreciation (depreciation) of other	—		340
Changes in assets and liabilities:
Amortization of deferred financing costs	563		756
Decrease (increase) in interest receivable, net	(545)		420
Decrease (increase) in funds due from administrative agent	610		(583)
Decrease (increase) in other assets, net	(1,265)		(76)
Increase (decrease) in accounts payable and accrued expenses	51		433
Increase (decrease) in interest payable	406		978
Increase (decrease) in fees due to Adviser(A)	943		(144)
Increase (decrease) in fee due to Administrator(A)	197		167
Increase (decrease) in other liabilities	(3,943)		471
Net cash provided by (used in) operating activities	37,664		(4,751)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit	161,500		157,600
Repayments on line of credit	(194,600)		(244,400)
Proceeds from issuance of long term debt	50,000		150,000
Redemption of long term debt	(38,813)		(57,500)
Financing costs	(1,575)		(1,946)
Proceeds from issuance of common stock	—		16,528
Discounts, commissions and offering costs for issuance of common stock	—		(247)
Distributions paid to common stockholders	(13,378)		(12,679)
Net cash provided by (used in) financing activities	(36,866)		7,356
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS	798		2,605
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD	846		2,469
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD	$	1,644	$	5,074
CASH PAID FOR INTEREST	$	5,621	$	4,412
NON-CASH ACTIVITIES(B)	$	710	$	—

(A)Refer to Note 4—Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

(B)Non-cash activities relate to estimated tax liabilities and escrows associated with portfolio company exits.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

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GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS MARCH 31, 2022 (UNAUDITED) (DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(K)	Principal/ Shares/ Units(J)(I)		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS(M) – 141.4%
Secured First Lien Debt – 100.5%
Aerospace and Defense – 19.9%
Antenna Research Associates, Inc. – Term Debt (L + 10.0%, 12.0% Cash, 4.0% PIK, Due 11/2023)(E)	$	11,672	$	11,672	$	11,672
Ohio Armor Holdings, LLC – Term Debt (L + 8.0%, 9.0% Cash, Due 2/2026)(C)	19,500		19,500		19,451
SpaceCo Holdings, LLC – Line of Credit, $400 available (L + 7.0%, 8.0% Cash, Due 12/2025)(C)	1,600		1,600		1,600
SpaceCo Holdings, LLC – Term Debt (L + 7.0%, 8.0% Cash, Due 12/2025)(C)	32,131		31,684		32,131
			64,456		64,854
Beverage, Food, and Tobacco – 13.2%
Café Zupas – Line of Credit, $4,000 available (L + 7.4%, 8.9% Cash, Due 12/2024)(C)	—		—		—
Café Zupas – Delayed Draw Term Loan, $0 available (L + 7.4%, 8.9% Cash, Due 12/2024)(C)	1,970		1,970		1,970
Café Zupas – Term Debt (L + 7.4%, 8.9% Cash, Due 12/2024)(C)	23,820		23,820		23,820
Eegee’s LLC – Line of Credit, $1,000 available (L + 7.3%, 8.3% Cash, Due 6/2026)(C)	—		—		—
Eegee’s LLC – Delayed Draw Term Loan, $7,500 available (L + 7.3%, 8.3% Cash, Due 6/2026)(C)	—		—		—
Eegee’s LLC – Term Debt (L + 7.3%, 8.3% Cash, Due 6/2026)(C)	17,000		17,000		17,021
			42,790		42,811
Buildings and Real Estate – 0.5%
GFRC 360, LLC – Line of Credit, $500 available (L + 8.0%, 9.0% Cash, Due 9/2022)(C)	700		700		693
GFRC 360, LLC – Term Debt (L + 8.0%, 9.0% Cash, Due 9/2022)(C)	1,000		1,000		990
			1,700		1,683
Diversified/Conglomerate Manufacturing – 10.8%
Engineering Manufacturing Technologies, LLC – Line of Credit, $3,000 available (L + 8.3%, 9.3% Cash, Due 10/2026)(C)	—		—		—
Engineering Manufacturing Technologies, LLC – Term Debt (L + 8.3%, 9.3% Cash, Due 10/2026)(C)	22,500		22,500		22,359
Unirac, Inc. – Line of Credit, $125 available (L + 7.0%, 8.0% Cash, Due 6/2026)(C)	1,128		1,128		1,130
Unirac, Inc. – Delayed Draw Term Loan, $1,254 available (L + 7.0%, 8.0% Cash, Due 6/2026)(C)	—		—		—
Unirac, Inc. – Term Debt (L + 7.0%, 8.0% Cash, Due 6/2026)(C)	11,771		11,527		11,786
			35,155		35,275
Diversified/Conglomerate Service – 27.4%
DKI Ventures, LLC – Term Debt (L + 8.3%, 9.3% Cash, 4.0% PIK, Due 12/2023)(C)	5,876		5,876		4,863
ENET Holdings, LLC – Term Debt (L + 8.8%, 10.2% Cash, Due 12/2022)(C)	1,000		1,000		895
ENET Holdings, LLC – Term Debt (L + 8.8%, 10.2% Cash, Due 4/2025)(C)	29,000		29,000		25,955
Fix-It Group, LLC – Line of Credit, $3,000 available (L + 7.0%, 8.0% Cash, Due 12/2026)(C)	—		—		—
Fix-It Group, LLC – Term Debt (L + 7.0%, 8.0% Cash, Due 12/2026)(C)	10,000		10,000		9,913
Fix-It Group, LLC – Delayed Draw Term Loan, $10,000 available (L + 7.0%, 8.0% Cash, Due 12/2026)(C)	—		—		—
MCG Energy Solutions, LLC – Line of Credit, $3,000 available (L + 7.5%, 8.5% Cash, Due 3/2026)(C)	—		—		—
MCG Energy Solutions, LLC – Term Debt (L + 7.5%, 8.5% Cash, 3.5% PIK, Due 3/2026)(C)	20,451		20,451		19,685
R2i Holdings, LLC – Line of Credit, $1,171 available (8.0% Cash, Due 12/2023)(C)(F)	829		829		763
R2i Holdings, LLC – Term Debt (8.0% Cash, Due 12/2023)(C)(F)	18,500		18,500		17,020
WorkforceQA, LLC – Line of Credit, $2,000 available (L + 6.8%, 7.8% Cash, Due 12/2026)(C)	—		—		—
WorkforceQA, LLC – Term Debt (L + 9.0%, 10.0% Cash, Due 12/2026)(C)(H)	10,000		10,000		9,975
			95,656		89,069
Healthcare, Education, and Childcare – 24.8%
ALS Education, LLC – Line of Credit, $3,000 available (L + 7.0%, 8.5% Cash, Due 5/2025)(C)	—		—		—
ALS Education, LLC – Term Debt (L + 7.0%, 8.5% Cash, Due 5/2025)(C)	20,350		20,350		20,299
HH-Inspire Acquisition, Inc. – Line of Credit, $3,000 available (L + 6.8%, 7.8% Cash, Due 12/2026)(C)	—		—		—
HH-Inspire Acquisition, Inc. – Term Debt (L + 6.8%, 7.8% Cash, Due 12/2026)(C)	16,000		16,000		15,920

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

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GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS MARCH 31, 2022 (UNAUDITED) (DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(K)	Principal/ Shares/ Units(J)(I)		Cost		Fair Value
HH-Inspire Acquisition, Inc. – Delayed Draw Term Loan, $10,000 available (L + 6.8%, 7.8% Cash, Due 12/2026)(C)	—		—		—
Pansophic Learning Ltd. – Term Debt (L + 7.3%, 8.3% Cash, Due 3/2027)(C)(Y)	28,000		27,958		28,000
Pansophic Learning Ltd. – Term Debt (L + 7.3%, 8.3% Cash, Due 3/2027)(C)(Y)	5,000		4,993		5,000
Turn Key Health Clinics, LLC – Line of Credit, $1,500 available (L + 7.3%, 8.3% Cash, Due 6/2026)(C)	500		500		499
Turn Key Health Clinics, LLC – Term Debt (L + 7.3%, 8.3% Cash, Due 6/2026)(C)	11,000		11,000		10,986
			80,801		80,704
Machinery – 1.7%
Arc Drilling Holdings LLC – Line of Credit, $875 available (L + 8.0%, 9.3% Cash, Due 11/2022)(C)	125		125		120
Arc Drilling Holdings LLC – Term Debt (L + 9.5%, 10.8% Cash, 3.0% PIK, Due 11/2022)(C)	5,837		5,837		5,459
			5,962		5,579
Printing and Publishing – 0.0%
Chinese Yellow Pages Company – Line of Credit, $0 available (PRIME + 4.0%, 7.5% Cash, Due 2/2015)(E)(V)(Q)	$	107	107		—
Telecommunications – 2.2%
B+T Group Acquisition, Inc.(S) – Line of Credit, $0 available (L + 11.0%, 13.0% Cash, Due 12/2024)(C)	1,200		1,200		1,173
B+T Group Acquisition, Inc.(S) – Term Debt (L + 11.0%, 13.0% Cash, Due 12/2024)(C)	6,000		6,000		5,865
			7,200		7,038
Total Secured First Lien Debt			$	333,827	$	327,013
Secured Second Lien Debt – 23.8%
Automobile – 3.2%
Sea Link International IRB, Inc. – Term Debt (11.3% Cash, 2.0% PIK, Due 3/2023)(C)(F)	$	11,003	$	11,003	$	10,343
Beverage, Food, and Tobacco – 1.0%
8th Avenue Food & Provisions, Inc. – Term Debt (L + 7.8%, 8.2% Cash, Due 10/2026)(D)	3,682		3,700		3,315
Diversified/Conglomerate Manufacturing – 10.6%
Springfield, Inc. – Term Debt (L + 9.0%, 10.0% Cash, Due 12/2026)(C)	30,000		30,000		29,925
Tailwind Smith Cooper Intermediate Corporation – Term Debt (L + 9.0%, 9.5% Cash, Due 5/2027)(D)	5,000		4,815		4,662
			34,815		34,587
Diversified/Conglomerate Service – 1.5%
CHA Holdings, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 4/2026)(D)(U)	3,000		2,963		2,760
Gray Matter Systems, LLC – Term Debt (12.0% Cash, Due 12/2026)(C)(F)	2,100		2,066		2,100
			5,029		4,860
Machinery – 0.2%
CPM Holdings, Inc. – Term Debt (L + 8.3%, 8.7% Cash, Due 11/2026)(D)	798		798		790
Oil and Gas – 7.3%
Imperative Holdings Corporation – Term Debt (L + 10.3%, 12.3% Cash, 1.8% PIK, Due 9/2024)(C)	25,296		25,237		23,778
Total Secured Second Lien Debt			$	80,582	$	77,673
Unsecured Debt – 0.0%
Diversified/Conglomerate Service – 0.0%
Frontier Financial Group Inc. – Convertible Debt (6.0%, Due 6/2022)(E)(F)	$	198	$	198	$	64
Preferred Equity – 5.9%
Automobile – 0.0%
Sea Link International IRB, Inc. – Preferred Stock(E)(G)	98,039		98		139
Beverage, Food, and Tobacco – 0.0%
Triple H Food Processors, LLC – Preferred Stock(E)(G)	75		75		111
Buildings and Real Estate – 0.3%
GFRC 360, LLC – Preferred Stock(E)(G)	1,000		1,025		964
Diversified/Conglomerate Service – 2.6%
Frontier Financial Group Inc. – Preferred Stock(E)(G)	766		500		—
Frontier Financial Group Inc. – Preferred Stock Warrant(E)(G)	168		—		—
MCG Energy Solutions, LLC – Preferred Stock(E)	7,000,000		7,000		8,503

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

Table of Contents


GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS MARCH 31, 2022 (UNAUDITED) (DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(K)	Principal/ Shares/ Units(J)(I)			Cost		Fair Value
				7,500		8,503
Healthcare, Education, and Childcare – 0.3%
HH-Inspire Acquisition, Inc. – Preferred Stock(E)(G)	750,000			750		802
Oil and Gas – 0.6%
FES Resources Holdings LLC – Preferred Equity Units(E)(G)	6,350			6,350		—
Imperative Holdings Corporation – Preferred Equity Units(E)(G)	13,740			632		1,770
				6,982		1,770
Telecommunications – 2.1%
B+T Group Acquisition, Inc.(S) – Preferred Stock(E)(G)	6,130			2,024		6,320
NetFortris Holdings LLC – Preferred Stock(E)(G)(Z)	7,890,860			789		647
				2,813		6,967
Total Preferred Equity				$	19,243	$	19,256
Common Equity – 11.2%
Aerospace and Defense – 4.3%
Antenna Research Associates, Inc. – Common Equity Units(E)(G)	4,283			$	4,283	$	11,985
Ohio Armor Holdings, LLC – Common Equity(E)(G)	1,000			1,000		1,912
				5,283		13,897
Automobile – 0.0%
Sea Link International IRB, Inc.– Common Equity Units(E)(G)	823,333			823		43
Beverage, Food, and Tobacco – 0.3%
Triple H Food Processors, LLC – Common Stock(E)(G)	250,000			250		914
Buildings and Real Estate – 0.0%
GFRC 360, LLC – Common Stock Warrants(E)(G)	45.0		%	—		—
Diversified/Conglomerate Manufacturing – 0.9%
Engineering Manufacturing Technologies, LLC – Common Stock(E)(G)	6,000			3,000		2,779
Diversified/Conglomerate Service – 0.2%
WorkforceQA, LLC – Common Stock(E)(G)	500			500		590
Healthcare, Education, and Childcare – 1.9%
GSM MidCo LLC – Common Stock(E)(G)	767			767		1,184
Leeds Novamark Capital I, L.P. – Limited Partnership Interest ($843 uncalled capital commitment)(G)(L)(R)	3.5		%	1,223		4,964
				1,990		6,148
Machinery – 0.0%
Arc Drilling Holdings LLC – Common Stock(E)(G)	15,000			1,500		—
Oil and Gas – 0.0%
FES Resources Holdings LLC – Common Equity Units(E)(G)	6,233			—		—
Total Safety Holdings, LLC – Common Equity(E)(G)	435			499		83
				499		83
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%
Funko Acquisition Holdings, LLC(S) – Common Units(G)(T)	6,290			30		76
Telecommunications – 0.1%
B+T Group Acquisition, Inc.(S) – Common Stock Warrant(E)(G)	1.5		%	—		395
Textiles and Leather – 3.5%
Targus Cayman HoldCo, Ltd. – Common Stock(E)(G)	3,076,414			2,062		11,460
Total Common Equity				$	15,937	$	36,385
Total Non-Control/Non-Affiliate Investments				$	449,787	$	460,391

AFFILIATE INVESTMENTS(N) – 12.3%
Secured First Lien Debt – 11.2%
Diversified/Conglomerate Manufacturing – 1.9%
Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 5.5%, 7.5% Cash, Due 8/2024)(C)	$	6,140		$	6,140	$	6,048
Diversified/Conglomerate Service – 9.3%
Encore Dredging Holdings, LLC – Line of Credit, $1,000 available (L + 8.0%, 9.0% Cash, Due 12/2025)(C)	2,000			2,000		1,988
Encore Dredging Holdings, LLC – Term Debt (L + 8.0%, 9.0% Cash, Due 12/2025)(C)	23,500			23,500		23,353

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

Table of Contents


GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS MARCH 31, 2022 (UNAUDITED) (DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(K)	Principal/ Shares/ Units(J)(I)		Cost		Fair Value
Encore Dredging Holdings, LLC – Delayed Draw Term Loan, $0 available (L + 8.0%, 9.0% Cash, Due 12/2025)(C)	5,000		5,000		4,969
			30,500		30,310
Total Secured First Lien Debt			$	36,640	$	36,358
Preferred Equity – 0.9%
Diversified/Conglomerate Manufacturing – 0.0%
Edge Adhesives Holdings, Inc.(S) – Preferred Stock(E)(G)	5,466		$	5,466	$	—
Diversified/Conglomerate Service– 0.7%
Encore Dredging Holdings, LLC – Preferred Stock(E)(G)	3,200,000		3,200		$	2,057
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.2%
Canopy Safety Brands, LLC – Preferred Stock(E)(G)	500,000		500		768
Total Preferred Equity			$	9,166	$	2,825
Common Equity – 0.2%
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.2%
Canopy Safety Brands, LLC – Common Stock(E)(G)	800,000		300		700
Total Common Equity			$	300	$	700
Total Affiliate Investments			$	46,106	$	39,883

CONTROL INVESTMENTS(O) – 11.5%
Secured First Lien Debt – 4.5%
Diversified/Conglomerate Manufacturing – 0.8%
LWO Acquisitions Company LLC – Term Debt (L + 7.5%, 10.0% Cash, Due 6/2021)(E)(Q)(X)	$	6,000	$	6,000	$	2,638
LWO Acquisitions Company LLC – Term Debt (Due 6/2021)(E)(P)(Q)(X)	10,732		10,732		—
			16,732		2,638
Personal and Non-Durable Consumer Products (Manufacturing Only) – 3.3%
WB Xcel Holdings, LLC – Line of Credit, $682 available (L + 10.5%, 11.5% Cash, Due 11/2026)(E)	818		818		818
WB Xcel Holdings, LLC – Term Debt (L + 10.5%, 11.5% Cash, Due 11/2026)(E)	9,975		9,975		9,975
			10,793		10,793
Printing and Publishing – 0.4%
TNCP Intermediate HoldCo, LLC – Line of Credit, $900 available (8.0% Cash, Due 10/2024)(E)(F)	1,100		1,100		1,100
Total Secured First Lien Debt			$	28,625	$	14,531
Secured Second Lien Debt – 2.4%
Automobile– 2.4%
Defiance Integrated Technologies, Inc. – Term Debt (L + 9.5%, 11.0% Cash, Due 5/2026)(E)	$	7,825	$	7,825	$	7,825
Unsecured Debt – 0.0%
Diversified/Conglomerate Manufacturing – 0.0%
LWO Acquisitions Company LLC – Term Debt (Due 6/2023)(E)(P)(X)	$	95	$	95	$	—
LWO Acquisitions Company LLC – Term Debt (Due 8/2022)(E)(P)(X)	25		25		—
			$	120	$	—
Preferred Equity – 1.8%
Automobile– 0.1%
Defiance Integrated Technologies, Inc. – Preferred Stock(E)(G)	6,043		$	250	$	278
Personal and Non-Durable Consumer Products (Manufacturing Only) – 1.7%
WB Xcel Holdings, LLC – Preferred Stock(E)(G)	333		2,750		5,576
Total Preferred Equity			$	3,000	$	5,854
Common Equity – 2.8%
Automobile– 0.9%
Defiance Integrated Technologies, Inc. – Common Stock(E)(G)	33,231		$	580	$	3,034
Diversified/Conglomerate Manufacturing – 0.0%
LWO Acquisitions Company LLC – Common Units(E)(G)(X)	921,000		921		—
Machinery – 1.2%
PIC 360, LLC – Common Equity Units(E)(G)	750		1		4,061

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

Table of Contents


GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS MARCH 31, 2022 (UNAUDITED) (DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(K)	Principal/ Shares/ Units(J)(I)	Cost		Fair Value
Printing and Publishing – 0.7%
TNCP Intermediate HoldCo, LLC – Common Equity Units(E)(G)	790,000	500		2,124
Total Common Equity		$	2,002	$	9,219
Total Control Investments		$	41,572	$	37,429
TOTAL INVESTMENTS – 165.2%		$	537,465	$	537,703

(A)Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $478.3 million at fair value, are pledged as collateral under our revolving line of credit, as described further in Note 5—Borrowings in the accompanying Notes to Consolidated Financial Statements. Under the Investment Company Act of 1940, as amended (the “1940 Act”), we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of March 31, 2022, our investments in Leeds Novamark Capital I, L.P. (“Leeds”) and Funko Acquisition Holdings, LLC (“Funko”) are considered non-qualifying assets under Section 55 of the 1940 Act. Such non-qualifying assets represent 0.9% of total investments, at fair value, as of March 31, 2022.

(B)Unless indicated otherwise, all cash interest rates are indexed to 30-day London Interbank Offered Rate (“LIBOR” or “L”), which was 0.45% as of March 31, 2022. If applicable, paid-in-kind (“PIK”) interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or LIBOR plus a spread. Due dates represent the contractual maturity date.

(C)Fair value was based on an internal yield analysis or on estimates of value submitted by ICE Data Pricing and Reference Data, LLC (“ICE”).

(D)Fair value was based on the indicative bid price on or near March 31, 2022, offered by the respective syndication agent’s trading desk.

(E)Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the portfolio company’s securities in order of their relative priority in the capital structure.

(F)Debt security has a fixed interest rate.

(G)Security is non-income producing.

(H)The Company has entered into an agreement that entitles it to the "last out" tranche of the first lien secured loan, whereby the "first out" tranche will receive priority as to the "last out" tranche with respect to payments of principal, interest, and any other amounts due thereunder. Therefore, the Company receives a higher interest rate than the contractual stated interest rate of LIBOR plus 6.75% (Floor 1.0%) per the credit agreement and the Consolidated Schedule of Investments above reflects such higher rate.

(I)Represents the principal balance for debt investments and the number of shares/units held for equity investments. Warrants are represented as a percentage of ownership, as applicable.

(J)Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase.

(K)Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of March 31, 2022.

(L)There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured.

(M)Non-Control/Non-Affiliate investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities.

(N)Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.

(O)Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.

(P)Debt security does not have a stated interest rate that is payable thereon.

(Q)Investment maturity date has passed. Investment continues to make applicable interest payments.

(R)Fair value was based on net asset value provided by the fund as a practical expedient.

(S)One of our affiliated funds, Gladstone Investment Corporation, co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.

(T)Our investment in Funko was valued using Level 2 inputs within the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) fair value hierarchy. Our common units in Funko are convertible to class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of marketability. Funko, Inc. is traded on the Nasdaq Global Select Market under the trading symbol “FNKO.” Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

(U)The cash interest rate on this investment was indexed to 90-day LIBOR, which was 0.96% as of March 31, 2022.

(V)The cash interest rate on this investment was indexed to the U.S. Prime Rate (“PRIME”), which was 3.50% as of March 31, 2022.

(W)Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the ASC 820 fair value hierarchy. Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

(X)In February 2022, LWO Acquisitions Company LLC filed for Chapter 11 bankruptcy protection.

(Y)Investment formerly known as EL Academies, Inc.

(Z)Investment formerly known as NetFortris Corp.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

Table of Contents


GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2021 (DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(K)	Principal/ Shares/ Units(J)(I)			Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS(M) – 142.8%
Secured First Lien Debt – 95.5%
Aerospace and Defense – 20.3%
Antenna Research Associates, Inc. – Term Debt (L + 10.0%, 12.0% Cash, 4.0% PIK, Due 11/2023)(E)	$	11,763		$	11,763	$	11,763
Ohio Armor Holdings, LLC – Term Debt (L + 8.0%, 9.0% Cash, Due 2/2026)(C)	19,500			19,500		19,549
SpaceCo Holdings, LLC – Line of Credit, $1,300 available (L + 6.8%, 7.8% Cash, Due 12/2025)(C)	700			700		700
SpaceCo Holdings, LLC – Term Debt (L + 6.8%, 7.8% Cash, Due 12/2025)(C)	32,544			32,044		32,544
				64,007		64,556
Beverage, Food, and Tobacco – 13.5%
Café Zupas – Line of Credit, $4,000 available (L + 7.4%, 8.9% Cash, Due 12/2024)(C)	—			—		—
Café Zupas – Delayed Draw Term Loan, $3,030 available (L + 7.4%, 8.9% Cash, Due 12/2024)(C)	1,970			1,970		1,987
Café Zupas – Term Debt (L + 7.4%, 8.9% Cash, Due 12/2024)(C)	24,000			24,000		24,210
Eegee’s LLC – Line of Credit, $1,000 available (L + 7.3%, 8.3% Cash, Due 6/2026)(C)	—			—		—
Eegee’s LLC – Delayed Draw Term Loan, $7,500 available (L + 7.3%, 8.3% Cash, Due 6/2026)(C)	—			—		—
Eegee’s LLC – Term Debt (L + 7.3%, 8.3% Cash, Due 6/2026)(C)	17,000			17,000		16,936
				42,970		43,133
Buildings and Real Estate – 0.5%
GFRC 360, LLC – Line of Credit, $500 available (L + 8.0%, 9.0% Cash, Due 9/2022)(C)	700			700		699
GFRC 360, LLC – Term Debt (L + 8.0%, 9.0% Cash, Due 9/2022)(C)	1,000			1,000		999
				1,700		1,698
Diversified/Conglomerate Manufacturing – 3.8%
Unirac, Inc. – Line of Credit, $1,003 available (L + 7.0%, 8.0% Cash, Due 6/2026)(C)(U)	251			251		250
Unirac, Inc. – Delayed Draw Term Loan, $1,254 available (L + 7.0%, 8.0% Cash, Due 6/2026)(C)(U)	—			—		—
Unirac, Inc. – Term Debt (L + 7.0%, 8.0% Cash, Due 6/2026)(C)(U)	11,921			11,652		11,891
				11,903		12,141
Diversified/Conglomerate Service – 21.3%
DKI Ventures, LLC – Line of Credit, $2,500 available (L + 8.3%, 9.3% Cash, 2.0% PIK, Due 12/2021)(C)	—			—		—
DKI Ventures, LLC – Term Debt (L + 8.3%, 9.3% Cash, 2.0% PIK, Due 12/2023)(C)	5,739			5,724		5,008
ENET Holdings, LLC – Term Debt (L + 8.8%, 10.2% Cash, Due 12/2022)(C)	1,000			1,000		785
ENET Holdings, LLC – Term Debt (L + 8.8%, 10.2% Cash, Due 4/2025)(C)	29,000			29,000		22,765
MCG Energy Solutions, LLC – Line of Credit, $3,000 available (L + 7.5%, 8.5% Cash, Due 3/2026)(C)	—			—		—
MCG Energy Solutions, LLC – Term Debt (L + 7.5%, 8.5% Cash, 1.5% PIK, Due 3/2026)(C)	20,129			20,129		19,927
MCG Energy Solutions, LLC – Delayed Draw Term Loan, $3,000 available (L + 7.5%, 8.5% Cash, 1.5% PIK, Due 3/2026)(C)	—		`	—		—
R2i Holdings, LLC – Line of Credit, $1,171 available (8.0% Cash, Due 12/2021)(C)(F)	829			829		803
R2i Holdings, LLC – Term Debt (8.0% Cash, Due 12/2021)(C)(F)	19,000			19,000		18,406
				75,682		67,694
Healthcare, Education, and Childcare – 24.9%
ALS Education, LLC – Line of Credit, $3,000 available (L + 7.0%, 8.5% Cash, Due 5/2025)(C)	—			—		—
ALS Education, LLC – Term Debt (L + 7.0%, 8.5% Cash, Due 5/2025)(C)	20,680			20,680		20,809
Effective School Solutions LLC – Line of Credit, $2,000 available (L + 7.3%, 8.3% Cash, Due 12/2025)(C)	—			—		—
Effective School Solutions LLC – Term Debt (L + 7.3%, 8.3% Cash, Due 12/2025)(C)	19,000			19,000		19,095
Effective School Solutions LLC – Delayed Draw Term Loan, $3,200 available (L + 7.3%, 8.3% Cash, Due 12/2025)(C)	—			—		—
EL Academies, Inc. – Delayed Draw Term Loan, $0 available (L + 8.0%, 9.0% Cash, Due 8/2022)(C)	16,000			16,000		16,000
EL Academies, Inc. – Term Debt (L + 8.0%, 9.0% Cash, Due 8/2022)(C)	12,000			12,000		12,000
Turn Key Health Clinics, LLC – Line of Credit, $1,500 available (L + 7.3%, 8.3% Cash, Due 6/2026)(C)	500			500		499
Turn Key Health Clinics, LLC – Term Debt (L + 7.3%, 8.3% Cash, Due 6/2026)(C)	11,000			11,000		10,986
				79,180		79,389

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

Table of Contents


GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2021 (DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(K)	Principal/ Shares/ Units(J)(I)		Cost		Fair Value
Machinery – 1.8%
Arc Drilling Holdings LLC – Line of Credit, $875 available (L + 8.0%, 9.3% Cash, Due 11/2022)(C)	125		125		122
Arc Drilling Holdings LLC – Term Debt (L + 9.5%, 10.8% Cash, 3.0% PIK, Due 11/2022)(C)	5,824		5,824		5,577
			5,949		5,699
Printing and Publishing – 0.0%
Chinese Yellow Pages Company – Line of Credit, $0 available (PRIME + 4.0%, 7.3% Cash, Due 2/2015)(E)(V)(Q)	$	107	107		—
Telecommunications – 9.4%
B+T Group Acquisition, Inc.(S) – Line of Credit, $0 available (L + 11.0%, 13.0% Cash, Due 12/2021)(C)	1,200		1,200		1,158
B+T Group Acquisition, Inc.(S) – Term Debt (L + 11.0%, 13.0% Cash, Due 12/2021)(C)	6,000		6,000		5,790
NetFortris Corp. – Term Debt (L + 11.0%, 4.0% Cash, 7.5% PIK, Due 5/2021)(C)(Q)	27,350		26,946		22,837
			34,146		29,785
Total Secured First Lien Debt			$	315,644	$	304,095
Secured Second Lien Debt – 30.6%
Automobile – 3.3%
Sea Link International IRB, Inc. – Term Debt (11.3% Cash, 2.0% PIK, Due 3/2023)(C)(F)	$	10,893	$	10,893	$	10,376
Beverage, Food, and Tobacco – 1.1%
8th Avenue Food & Provisions, Inc. – Term Debt (L + 7.8%, 7.8% Cash, Due 10/2026)(D)	3,682		3,702		3,646
Chemicals, Plastics, and Rubber – 3.2%
Phoenix Aromas & Essential Oils, LLC – Term Debt (L + 9.3%, 10.3% Cash, Due 5/2024)(C)	10,012		9,986		10,062
Diversified/Conglomerate Manufacturing – 1.5%
Tailwind Smith Cooper Intermediate Corporation – Term Debt (L + 9.0%, 9.1% Cash, Due 5/2027)(D)	5,000		4,801		4,701
Diversified/Conglomerate Service – 8.7%
CHA Holdings, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 4/2026)(D)(U)	3,000		2,960		2,700
Gray Matter Systems, LLC – Term Debt (12.0% Cash, Due 12/2026)(C)(F)	8,100		8,064		8,130
Keystone Acquisition Corp. – Term Debt (L + 9.3%, 10.3% Cash, Due 5/2025)(D)(U)	4,000		3,954		3,790
Prophet Brand Strategy – Delayed Draw Term Loan, $5,000 available (L + 8.5%, 10.5% Cash, Due 2/2025)(Y)(Z)	—		—		—
Prophet Brand Strategy – Term Debt (L + 8.5%, 10.5% Cash, Due 2/2025)(Y)(Z)	13,000		13,000		13,130
			27,978		27,750
Healthcare, Education, and Childcare – 1.8%
Medical Solutions Holdings, Inc. – Term Debt (L + 8.4%, 9.4% Cash, Due 6/2025)(C)	3,000		2,974		2,940
Medical Solutions Holdings, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 6/2025)(C)	3,000		2,957		2,940
			5,931		5,880
Home and Office Furnishings, Housewares and Durable Consumer Products – 3.2%
Belnick, Inc. – Term Debt (11.0% Cash, Due 8/2023)(C)(F)	10,000		10,000		10,025
Machinery – 0.2%
CPM Holdings, Inc. – Term Debt (L + 8.3%, 8.3% Cash, Due 11/2026)(D)	798		798		790
Oil and Gas – 7.6%
Imperative Holdings Corporation – Term Debt (L + 10.3%, 12.3% Cash, 1.8% PIK, Due 9/2022)(C)	26,569		26,569		24,178
Total Secured Second Lien Debt			$	100,658	$	97,408
Unsecured Debt – 0.0%
Diversified/Conglomerate Service – 0.0%
Frontier Financial Group Inc. – Convertible Debt (6.0%, Due 6/2022)(E)(F)	$	198	$	198	$	10
Preferred Equity – 5.7%
Automobile – 0.0%
Sea Link International IRB, Inc. – Preferred Stock(E)(G)	98,039		98		127
Beverage, Food, and Tobacco – 0.0%
Triple H Food Processors, LLC – Preferred Stock(E)(G)	75		75		102
Buildings and Real Estate – 0.3%
GFRC 360, LLC – Preferred Stock(E)(G)	1,000		1,025		864

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

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GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2021 (DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(K)	Principal/ Shares/ Units(J)(I)			Cost		Fair Value
Diversified/Conglomerate Service – 2.8%
Frontier Financial Group Inc. – Preferred Stock(E)(G)	766			500		—
Frontier Financial Group Inc. – Preferred Stock Warrant(E)(G)	168			—		—
MCG Energy Solutions, LLC – Preferred Stock(E)	7,000,000			7,000		8,861
				7,500		8,861
Oil and Gas – 0.5%
FES Resources Holdings LLC – Preferred Equity Units(E)(G)	6,350			6,350		—
Imperative Holdings Corporation – Preferred Equity Units(E)(G)	13,740			632		1,551
				6,982		1,551
Telecommunications – 2.1%
B+T Group Acquisition, Inc.(S) – Preferred Stock(E)(G)	6,130			2,024		5,691
NetFortris Corp. – Preferred Stock(E)(G)	7,890,860			789		914
				2,813		6,605
Total Preferred Equity				$	18,493	$	18,110
Common Equity – 11.0%
Aerospace and Defense – 4.8%
Antenna Research Associates, Inc. – Common Equity Units(E)(G)	4,283			$	4,283	$	13,444
Ohio Armor Holdings, LLC – Common Equity(E)(G)	1,000			1,000		1,749
				5,283		15,193
Automobile– 0.1%
Sea Link International IRB, Inc.– Common Equity Units(E)(G)	823,333			823		300
Beverage, Food, and Tobacco – 0.5%
Triple H Food Processors, LLC – Common Stock(E)(G)	250,000			250		1,504
Buildings and Real Estate – 0.0%
GFRC 360, LLC – Common Stock Warrants(E)(G)	45.0		%	—		—
Healthcare, Education, and Childcare – 2.3%
GSM MidCo LLC – Common Stock(E)(G)	767			767		924
Leeds Novamark Capital I, L.P. – Limited Partnership Interest ($843 uncalled capital commitment)(G)(L)(R)	3.5		%	1,358		6,487
				2,125		7,411
Machinery – 0.0%
Arc Drilling Holdings LLC – Common Stock(E)(G)	15,000			1,500		—
Oil and Gas – 0.0%
FES Resources Holdings LLC – Common Equity Units(E)(G)	6,233			—		—
Total Safety Holdings, LLC – Common Equity(E)(G)	435			499		132
				499		132
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%
Funko Acquisition Holdings, LLC(S) – Common Units(G)(T)	6,290			30		78
Telecommunications – 0.1%
B+T Group Acquisition, Inc.(S) – Common Stock Warrant(E)(G)	1.5		%	—		330
NetFortris Corp. – Common Stock Warrant(E)(G)	1			1		—
				1		330
Textiles and Leather – 3.2%
Targus Cayman HoldCo, Ltd. – Common Stock(E)(G)	3,076,414			2,062		10,030
Total Common Equity				$	12,573	$	34,978
Total Non-Control/Non-Affiliate Investments				$	447,566	$	454,601
AFFILIATE INVESTMENTS(N) – 25.8%
Secured First Lien Debt – 9.1%
Diversified/Conglomerate Manufacturing – 1.7%
Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 10.5%, 12.5% Cash, Due 2/2022)(C)	$	5,540		$	5,540	$	5,540
Diversified/Conglomerate Service – 7.4%
Encore Dredging Holdings, LLC – Line of Credit, $3,000 available (L + 8.0%, 9.0% Cash, Due 12/2025)(C)	—			—		—
Encore Dredging Holdings, LLC – Term Debt (L + 8.0%, 9.0% Cash, Due 12/2025)(C)	23,500			23,500		23,618

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

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GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2021 (DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(K)	Principal/ Shares/ Units(J)(I)		Cost		Fair Value
Encore Dredging Holdings, LLC – Delayed Draw Term Loan, $5,000 available (L + 8.0%, 9.0% Cash, Due 12/2025)(C)	—		—		—
			23,500		23,618
Total Secured First Lien Debt			$	29,040	$	29,158
Secured Second Lien Debt – 9.6%
Diversified Natural Resources, Precious Metals and Minerals – 9.6%
Lignetics, Inc. – Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026)(Y)(Z)	$	6,000	$	6,000	$	6,540
Lignetics, Inc. – Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026)(Y)(Z)	8,000		8,000		8,633
Lignetics, Inc. – Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026)(Y)(Z)	3,300		3,300		3,491
Lignetics, Inc. – Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026)(Y)(Z)	3,000		3,000		3,199
Lignetics, Inc. – Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026)(Y)(Z)	2,500		2,500		2,500
Lignetics, Inc. – Term Debt (L + 9.8%, 11.8% Cash, Due 6/2026)(Y)(Z)	6,200		6,200		6,200
			29,000		30,563
Total Secured Second Lien Debt			$	29,000	$	30,563
Preferred Equity – 3.4%
Diversified/Conglomerate Manufacturing – 0.0%
Edge Adhesives Holdings, Inc.(S) – Preferred Stock(E)(G)	5,466		$	5,466	$	—
Diversified/Conglomerate Service– 1.4%
Encore Dredging Holdings, LLC – Preferred Stock(E)(G)	3,200,000		3,200		4,525
Diversified Natural Resources, Precious Metals and Minerals – 1.8%
Lignetics, Inc. – Preferred Stock(G)(Y)(Z)	78,097		1,321		5,602
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.2%
Canopy Safety Brands, LLC – Preferred Stock(E)(G)	500,000		500		739
Total Preferred Equity			$	10,487	$	10,866
Common Equity – 3.7%
Diversified Natural Resources, Precious Metals and Minerals – 3.5%
Lignetics, Inc. – Common Stock(G)(Y)(Z)	152,603		$	1,855	$	10,969
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.2%
Canopy Safety Brands, LLC – Common Stock(E)(G)	800,000		300		725
Total Common Equity			$	2,155	$	11,694
Total Affiliate Investments			$	70,682	$	82,281
CONTROL INVESTMENTS(O) – 6.5%
Secured First Lien Debt – 1.3%
Diversified/Conglomerate Manufacturing – 0.9%
LWO Acquisitions Company LLC – Term Debt (L + 7.5%, 10.0% Cash, Due 6/2021)(E)(Q)	$	6,000	$	6,000	$	2,841
LWO Acquisitions Company LLC – Term Debt (Due 6/2021)(E)(P)(Q)	10,632		10,632		—
			16,632		2,841
Printing and Publishing – 0.4%
TNCP Intermediate HoldCo, LLC – Line of Credit, $700 available (8.0% Cash, Due 10/2024)(E)(F)	1,300		1,300		1,300
Total Secured First Lien Debt			$	17,932	$	4,141
Secured Second Lien Debt – 2.5%
Automobile– 2.5%
Defiance Integrated Technologies, Inc. – Term Debt (L + 9.5%, 11.0% Cash, Due 5/2026)(E)	$	7,985	$	7,985	$	7,985
Unsecured Debt – 0.0%
Diversified/Conglomerate Manufacturing – 0.0%
LWO Acquisitions Company LLC – Term Debt (Due 6/2023)(E)(P)	$	95	$	95	$	—
Preferred Equity – 0.1%
Automobile– 0.1%
Defiance Integrated Technologies, Inc. – Preferred Stock(E)(G)	6,043		$	250	$	270
Common Equity – 2.6%
Automobile– 0.8%
Defiance Integrated Technologies, Inc. – Common Stock(E)(G)	33,231		$	580	$	2,623
Diversified/Conglomerate Manufacturing – 0.0%
LWO Acquisitions Company LLC – Common Units(E)(G)	921,000		921		—

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

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GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2021 (DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(K)	Principal/ Shares/ Units(J)(I)	Cost		Fair Value
Machinery – 1.3%
PIC 360, LLC – Common Equity Units(E)(G)	750	1		3,983
Printing and Publishing – 0.5%
TNCP Intermediate HoldCo, LLC – Common Equity Units(E)(G)	790,000	500		1,728
Total Common Equity		$	2,002	$	8,334
Total Control Investments		$	28,264	$	20,730
TOTAL INVESTMENTS – 175.1%		$	546,512	$	557,612

(A)Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $512.0 million at fair value, are pledged as collateral under our revolving line of credit, as described further in Note 5—Borrowings in the accompanying Notes to Consolidated Financial Statements. Under the Investment Company Act of 1940, as amended (the “1940 Act”), we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of September 30, 2021, our investments in Leeds Novamark Capital I, L.P. (“Leeds”) and Funko Acquisition Holdings, LLC (“Funko”) are considered non-qualifying assets under Section 55 of the 1940 Act. Such non-qualifying assets represent 1.2% of total investments, at fair value, as of September 30, 2021.

(B)Unless indicated otherwise, all cash interest rates are indexed to 30-day London Interbank Offered Rate (“LIBOR” or “L”), which was 0.08% as of September 30, 2021. If applicable, paid-in-kind (“PIK”) interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or LIBOR plus a spread. Due dates represent the contractual maturity date.

(C)Fair value was based on an internal yield analysis or on estimates of value submitted by ICE Data Pricing and Reference Data, LLC (“ICE”).

(D)Fair value was based on the indicative bid price on or near September 30, 2021, offered by the respective syndication agent’s trading desk.

(F)Debt security has a fixed interest rate.

(G)Security is non-income producing.

(H)Reserved.

(I)Represents the principal balance for debt investments and the number of shares/units held for equity investments. Warrants are represented as a percentage of ownership, as applicable.

(K)Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of September 30, 2021.

(N)Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.

(P)Debt security does not have a stated interest rate that is payable thereon.

(Q)Investment maturity date has passed. Investment continues to make applicable interest payments.

(R)Fair value was based on net asset value provided by the fund as a practical expedient.

(S)One of our affiliated funds, Gladstone Investment Corporation, co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.

(U)The cash interest rate on this investment was indexed to 90-day LIBOR, which was 0.13% as of September 30, 2021.

(V)The cash interest rate on this investment was indexed to the U.S. Prime Rate (“PRIME”), which was 3.25% as of September 30, 2021.

(X)Cumulative gross unrealized depreciation for federal income tax purposes is $59.4 million; cumulative gross unrealized appreciation for federal income tax purposes is $57.7 million. Cumulative net unrealized depreciation is $1.7 million, based on a tax cost of $559.3 million.

(Y)Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to occur imminently.

(Z)Investment was exited subsequent to September 30, 2021.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

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GLADSTONE CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2022

(DOLLAR AMOUNTS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)

NOTE 1. ORGANIZATION

Gladstone Capital Corporation was incorporated under the Maryland General Corporation Law on May 30, 2001 and completed an initial public offering on August 24, 2001. The terms “the Company,” “we,” “our” and “us” all refer to Gladstone Capital Corporation and its consolidated subsidiaries. We are an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and are applying the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services-Investment Companies” (“ASC 946”). In addition, we have elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States (“U.S.”). Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established lower middle market companies (which we generally define as companies with annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $3 million to $15 million) in the U.S. that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains.

Gladstone Business Loan, LLC (“Business Loan”), a wholly-owned subsidiary of ours, was established on February 3, 2003, for the sole purpose of holding certain investments pledged as collateral to our line of credit. The financial statements of Business Loan are consolidated with those of Gladstone Capital Corporation. We may also have significant subsidiaries (as defined under Rule 1-02(w)(2) of the U.S. Securities and Exchange Commission’s (“SEC”) Regulation S-X) whose financial statements are not consolidated with ours. We did not have any unconsolidated subsidiaries that met any of the significance conditions under Rule 1-02(w)(2) of the SEC’s Regulation S-X as of or during the six month period ended March 31, 2022 or the six month period ended March 31, 2021.

We are externally managed by Gladstone Management Corporation (the “Adviser”), an affiliate of ours and an SEC registered investment adviser, pursuant to an investment advisory and management agreement (as amended and/or restated from time to time, the “Advisory Agreement”). Administrative services are provided by Gladstone Administration, LLC (the “Administrator”), an affiliate of ours and the Adviser, pursuant to an administration agreement (the “Administration Agreement”). Refer to Note 4—Related Party Transactions for additional information regarding these arrangements.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Statements and Basis of Presentation

We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, we have not included in this quarterly report all of the information and notes required by GAAP for annual financial statements. The accompanying Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with Article 6 of Regulation S-X, we do not consolidate portfolio company investments. Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, codified in ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries. In our opinion, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations for the three and six months ended March 31, 2022 are not necessarily indicative of results that ultimately may be achieved for the fiscal year ending

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September 30, 2022 or any future interim periods. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, as filed with the SEC on November 15, 2021.

Use of Estimates

Preparing financial statements requires management to make estimates and assumptions that affect the amounts reported in our accompanying Consolidated Financial Statements and these Notes to Consolidated Financial Statements. Actual results may differ from those estimates.

Investment Valuation Policy

Accounting Recognition

We record our investments at fair value in accordance with the FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) and the 1940 Act. Investment transactions are recorded on the trade date. Realized gains or losses are generally measured by the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, and include investments charged off during the period, net of recoveries. Unrealized appreciation or depreciation primarily reflects the change in investment fair values, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Board Responsibility

In accordance with the 1940 Act, our board of directors (“Board of Directors”) has the ultimate responsibility for reviewing and determining, in good faith, the fair value of our investments for which market quotations are not readily available based on our investment valuation policy (which has been approved by our Board of Directors) (the “Policy”). Such review occurs in three phases. First, prior to its quarterly meetings, the Board of Directors receives written valuation recommendations and supporting materials provided by professionals of the Adviser and Administrator with oversight and direction from the chief valuation officer (the “Valuation Team”). Second, the Valuation Committee of our Board of Directors (comprised entirely of independent directors) meets to review the valuation recommendations and supporting materials, discusses the information provided by the Valuation Team, determines whether the Valuation Team has followed the Policy, determines whether the Valuation Team’s recommended fair value is reasonable in light of the Policy, and reviews other facts and circumstances, as necessary. Third, after the Valuation Committee concludes its meeting, it and the chief valuation officer present the Valuation Committee’s findings to the entire Board of Directors so that the full Board of Directors may review and determine in good faith the fair value of such investments in accordance with the Policy.

There is no single standard for determining fair value (especially for privately-held businesses), as fair value depends upon the specific facts and circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by the chief valuation officer, uses the Policy, and each quarter the Valuation Committee and Board of Directors review the Policy to determine if changes thereto are advisable and whether the Valuation Team has applied the Policy consistently.

Use of Third Party Valuation Firms

The Valuation Team engages third party valuation firms to provide independent assessments of fair value of certain of our investments.

ICE Data Pricing and Reference Data, LLC (“ICE”), a valuation specialist, generally provides estimates of fair value on our proprietary debt investments. The Valuation Team generally assigns ICE’s estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the applicable portfolio company. The Valuation Team corroborates ICE’s estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Team’s estimate of value on a specific debt investment may significantly differ from ICE’s. When this occurs, our Valuation Committee and Board of Directors review whether the Valuation Team has followed the Policy and whether the Valuation Team’s recommended fair value is reasonable in light of the Policy and other facts and circumstances before determining fair value.

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We may engage other independent valuation firms to provide earnings multiple ranges, as well as other information, and evaluate such information for incorporation into the total enterprise value (“TEV”) of certain of our investments. Generally, at least once per year, we engage an independent valuation firm to value or review the valuation of each of our significant equity investments, which includes providing the information noted above. The Valuation Team evaluates such information for incorporation into our TEV, including review of all inputs provided by the independent valuation firm. The Valuation Team then makes a recommendation to our Valuation Committee and Board of Directors as to the fair value. Our Board of Directors reviews the recommended fair value, and whether it is reasonable in light of the Policy, and other relevant facts and circumstances, as necessary, before determining fair value.

Valuation Techniques

In accordance with ASC 820, the Valuation Team uses the following techniques when valuing our investment portfolio:

•Total Enterprise Value — In determining the fair value using a TEV, the Valuation Team first calculates the TEV of the portfolio company by incorporating some or all of the following factors: the portfolio company’s ability to make payments and other specific portfolio company attributes; the earnings of the portfolio company (the trailing or projected twelve month revenue or EBITDA); EBITDA multiples obtained from our indexing methodology whereby the original transaction EBITDA multiple at the time of our closing is indexed to a general subset of comparable disclosed transactions and EBITDA multiples from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries, and other pertinent factors. The Valuation Team generally reviews industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team generally allocates the TEV to the portfolio company’s securities based on the facts and circumstances of the securities, which typically results in the allocation of fair value to securities based on the order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our equity investments and, in the circumstances where we have the ability to effectuate a sale of a portfolio company, our debt investments.

TEV is primarily calculated using EBITDA and EBITDA multiples; however, TEV may also be calculated using revenue and revenue multiples or a discounted cash flow (“DCF”) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate adjustments for nonperformance and liquidity risks. Generally, the Valuation Team uses a DCF analysis to calculate TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio company or for debt of credit impaired portfolio companies.

•Yield Analysis — The Valuation Team generally determines the fair value of our debt investments for which we do not have the ability to effectuate a sale of the applicable portfolio company using the yield analysis, which includes a DCF calculation and assumptions that the Valuation Team believes market participants would use, including, estimated remaining life, current market yield, current leverage, and interest rate spreads. This technique develops a modified discount rate that incorporates risk premiums including increased probability of default, increased loss upon default and increased liquidity risk. Generally, the Valuation Team uses the yield analysis to corroborate both estimates of value provided by ICE and market quotes.

•Market Quotes — For our investments for which a limited market exists, we generally base fair value on readily available and reliable market quotations which are corroborated by the Valuation Team (generally by using the yield analysis described above). In addition, the Valuation Team assesses trading activity for similar investments and evaluates variances in quotations and other market insights to determine if any available quoted prices are reliable. Typically, the Valuation Team uses the lower indicative bid price (“IBP”) in the bid-to-ask price range obtained from the respective originating syndication agent’s trading desk on or near the valuation date. The Valuation Team may take further steps to consider additional information to validate that price in accordance with the Policy. For securities that are publicly traded, we generally base fair value on the closing market price of the securities we hold as of the reporting date. For restricted securities that are publicly traded, we generally base fair value on the closing market price of the securities we hold as of the reporting date less a discount for the restriction, which includes consideration of the nature and term to expiration of the restriction.

•Investments in Funds — For equity investments in other funds for which we cannot effectuate a sale of the fund, the Valuation Team generally determines the fair value of our invested capital at the net asset value (“NAV”) provided by the fund. Any invested capital that is not yet reflected in the NAV provided by the fund is valued at

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par value. The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying entity.

In addition to the valuation techniques listed above, the Valuation Team may also consider other factors when determining the fair value of our investments, including: the nature and realizable value of the collateral, including external parties’ guaranties, any relevant offers or letters of intent to acquire the portfolio company, timing of expected loan repayments, and the markets in which the portfolio company operates.

Fair value measurements of our investments may involve subjective judgments and estimates and due to the uncertainty inherent in valuing these securities, the determinations of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be materially affected if the determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities. Additionally, changes in the market environment and other events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded.

Refer to Note 3—Investments for additional information regarding fair value measurements and our application of ASC 820.

Revenue Recognition

Interest Income Recognition

Interest income, including the amortization of premiums, acquisition costs and amendment fees, the accretion of original issue discounts (“OID”), and paid-in-kind (“PIK”) interest, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan for financial reporting purposes until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis depending upon management’s judgment. Generally, non-accrual loans are restored to accrual status when past due principal and interest are paid and, in management’s judgment, are likely to remain current, or due to a restructuring such that the interest income is deemed to be collectible. As of March 31, 2022 and September 30, 2021, there were no loans on non-accrual status.

We currently hold, and we expect to hold in the future, some loans in our portfolio that contain OID or PIK provisions. We recognize OID for loans originally issued at discounts and recognize the income over the life of the obligation based on an effective yield calculation. PIK interest, computed at the contractual rate specified in a loan agreement, is added to the principal balance of a loan and recorded as income over the life of the obligation. Thus, the actual collection of PIK income may be deferred until the time of debt principal repayment. To maintain our ability to be taxed as a RIC, we may need to pay out both OID and PIK non-cash income amounts in the form of distributions, even though we have not yet collected the cash on either.

As of March 31, 2022 and September 30, 2021, we held four and six OID loans, respectively, primarily from the syndicated loans in our portfolio. We recorded OID income of $87 thousand and $0.2 million during the three and six months ended March 31, 2022, respectively, and $39 thousand and $0.1 million during the three and six months ended March 31, 2021, respectively. The unamortized balance of OID investments as of March 31, 2022 and September 30, 2021 totaled $0.9 million and $1.1 million, respectively. As of March 31, 2022 and September 30, 2021, we had six and seven investments which had a PIK interest component, respectively. We recorded PIK interest income of $0.9 million and $2.1 million during the three and six months ended March 31, 2022, respectively, and $0.4 million and $1.0 million during the three and six months ended March 31, 2021, respectively. We collected $2.4 million in PIK interest in cash during each of the three and six months ended March 31, 2022, and $1.2 million and $3.4 million during the three and six months ended March 31, 2021, respectively.

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Success Fee Income Recognition

We record success fees as income when earned, which often occurs upon receipt of cash. Success fees are generally contractually due upon a change of control in a portfolio company, typically resulting from an exit or sale, and are non-recurring.

Dividend Income Recognition

We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we have the option to collect such amounts in cash or other consideration.

Related Party Fees

We are party to the Advisory Agreement with the Adviser, which is owned and controlled by our chairman and chief executive officer. In accordance with the Advisory Agreement, we pay the Adviser fees as compensation for its services, consisting of a base management fee and an incentive fee. Additionally, we pay the Adviser a loan servicing fee as compensation for its services as servicer under the terms of our revolving credit facility with KeyBank National Association (“KeyBank”), as administrative agent, lead arranger and lender (as amended and/or restated from time to time, our “Credit Facility”). These fees are accrued at the end of the quarter when the services are performed and generally paid the following quarter.

We are also party to the Administration Agreement with the Administrator, which is owned and controlled by our chairman and chief executive officer, whereby we pay separately for administrative services. Refer to Note 4—Related Party Transactions for additional information regarding these related party fees and agreements.

NOTE 3. INVESTMENTS

Fair Value

In accordance with ASC 820, the fair value of each investment is determined to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between willing market participants on the measurement date. This fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.

•Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical financial instruments in active markets;

•Level 2 — inputs to the valuation methodology include quoted prices for similar financial instruments in active or inactive markets, and inputs that are observable for the financial instrument, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers; and

•Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants would use when pricing the financial instrument and can include the Valuation Team’s assumptions based upon the best available information.

When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable inputs (or components that are actively quoted and can be validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Investments in funds measured using NAV as a practical expedient are not categorized within the fair value hierarchy.

As of each of March 31, 2022 and September 30, 2021, all of our investments were valued using Level 3 inputs within the ASC 820 fair value hierarchy, except for our investment in Funko Acquisition Holdings, LLC (“Funko”), which was

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valued using Level 2 inputs, and our investment in Leeds Novamark Capital I, L.P. (“Leeds”), which was valued using NAV as a practical expedient.

We transfer investments in and out of Level 1, 2, and 3 of the valuation hierarchy as of the beginning balance sheet date, based on changes in the use of observable and unobservable inputs utilized to perform the valuation for the period. During the six months ended March 31, 2022 and 2021, there were no investments transferred into or out of Levels 1, 2 or 3 of the valuation hierarchy.

As of March 31, 2022 and September 30, 2021, our investments, by security type, at fair value were categorized as follows within the ASC 820 fair value hierarchy:


				Fair Value Measurements
	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
As of March 31, 2022:
Secured first lien debt	$	377,902		$	—	$	—		$	377,902
Secured second lien debt	85,498			—		—			85,498
Unsecured debt	64			—		—			64
Preferred equity	27,935			—		—			27,935
Common equity/equivalents	41,340		(A)	—		76		(B)	41,264
Total Investments at March 31, 2022	$	532,739		$	—	$	76		$	532,663


				Fair Value Measurements
	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
As of September 30, 2021:
Secured first lien debt	$	337,394		$	—	$	—		$	337,394
Secured second lien debt	135,956			—		—			135,956
Unsecured debt	10			—		—			10
Preferred equity	29,246			—		—			29,246
Common equity/equivalents	48,519		(A)	—		78		(B)	48,441
Total Investments as of September 30, 2021	$	551,125		$	—	$	78		$	551,047

(A)Excludes our investment in Leeds with a fair value of $5.0 million and $6.5 million as of March 31, 2022 and September 30, 2021, respectively. Leeds was valued using NAV as a practical expedient.

(B)Fair value was determined based on the closing market price of shares of Funko, Inc. (our units in Funko can be converted into common shares of Funko, Inc.) at the reporting date less a discount for lack of marketability as our investment was subject to certain restrictions.

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The following table presents our portfolio investments, valued using Level 3 inputs within the ASC 820 fair value hierarchy and carried at fair value as of March 31, 2022 and September 30, 2021, by caption on our accompanying Consolidated Statements of Assets and Liabilities and by security type:


	Total Recurring Fair Value Measurements Reported in
	Consolidated Statements of Assets and Liabilities Using Significant Unobservable Inputs (Level 3)
	March 31, 2022			September 30, 2021
Non-Control/Non-Affiliate Investments
Secured first lien debt	$	327,013		$	304,095
Secured second lien debt	77,673			97,408
Unsecured debt	64			10
Preferred equity	19,256			18,110
Common equity/equivalents	31,345		(A)	28,413		(B)
Total Non-Control/Non-Affiliate Investments	$	455,351		$	448,036
Affiliate Investments
Secured first lien debt	$	36,358		$	29,158
Secured second lien debt	—			30,563
Preferred equity	2,825			10,866
Common equity/equivalents	700			11,694
Total Affiliate Investments	$	39,883		$	82,281
Control Investments
Secured first lien debt	$	14,531		$	4,141
Secured second lien debt	7,825			7,985
Preferred equity	5,854			270
Common equity/equivalents	9,219			8,334
Total Control Investments	$	37,429		$	20,730
Total Investments at Fair Value Using Level 3 Inputs	$	532,663		$	551,047

(A)Excludes our investments in Leeds and Funko with fair values of $5.0 million and $76 thousand, respectively, as of March 31, 2022. Leeds was valued using NAV as a practical expedient, and Funko was valued using Level 2 inputs.

(B)Excludes our investments in Leeds and Funko with fair values of $6.5 million and $78 thousand, respectively, as of September 30, 2021. Leeds was valued using NAV as a practical expedient, and Funko was valued using Level 2 inputs.

In accordance with ASC 820, the following table provides quantitative information about our Level 3 fair value measurements of our investments as of March 31, 2022 and September 30, 2021. The table below is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements.

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The weighted average calculations in the table below are based on the principal balances for all debt related calculations and on the cost basis for all equity related calculations for the particular input.

Quantitative Information about Level 3 Fair Value Measurements

Range / Weighted Average as of

March 31,
2022

September 30,
2021

Valuation

Techniques/

Methodologies

Unobservable

Input

March 31,
2022

September 30,
2021

Secured first lien debt

351,699

321,490

Yield Analysis

Discount Rate

7.9% - 26.2%

/ 10.5%

7.5% - 31.2%

/ 12.4%

26,203

15,904

TEV

EBITDA multiple

5.3x – 7.4x

/ 6.5x

5.4x – 5.9x

/ 5.9x

EBITDA

$689 - $9,506

/ $5,871

$620 - $10,209

/ $9,255

Revenue multiple

0.3x – 0.3x

/ 0.3x

0.3x – 0.3x

/ 0.3x

Revenue

$9,744 - $9,744

/ $9,744

$9,968 - $9,968

/ $9,968

Secured second lien debt

66,146

106,464

Yield Analysis

Discount Rate

10.1% - 20.2%

/ 14.5%

10.1% - 23.7%

/ 14.7%

11,527

21,507

Market Quote

IBP

90.0% - 99.0%

/ 92.4%

90.0% - 99.0%

/ 95.7%

7,825

7,985

TEV

EBITDA multiple

5.9x – 5.9x

/ 5.9x

6.0x – 6.0x

/ 6.0x

EBITDA

$3,532 - $3,532

/ $3,532

$3,125 - $3,125

/ $3,125

Unsecured debt

TEV

Revenue multiple

0.3x – 1.3x

/ 0.9x

0.3x – 1.4x

/ 1.0x

Revenue

$722 - $9,744

/ $4,127

$752 - $9,968

/ $3,740

Preferred and common equity / equivalents(A)

69,199

77,687

TEV

EBITDA multiple

4.5x – 10.0x

/ 6.8x

3.7x – 9.5x

/ 7.2x

EBITDA

$689 -$54,654

/ $9,841

$620 -$62,547

/ $14,788

Revenue multiple

0.3x – 4.4x

/ 2.2x

0.3x– 4.0x

/ 2.0x

Revenue

$722 -$175,678

/ $30,837

$752 -$144,889

/ $29,437

Total Level 3 Investments, at Fair Value

532,663

551,047

(A)Fair value as of March 31, 2022 excludes our investments in Leeds and Funko with fair values of $5.0 million and $76 thousand, respectively. Fair value as of September 30, 2021 excludes our investments in Leeds and Funko with fair values of $6.5 million and $78 thousand, respectively. Leeds was valued using NAV as a practical expedient and Funko was valued using Level 2 inputs as of both March 31, 2022 and September 30, 2021.

Fair value measurements can be sensitive to changes in one or more of the valuation inputs. Changes in discount rates, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase/(decrease) in market yields or, discount rates, or a (decrease)/increase in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a (decrease)/increase, respectively, in the fair value of certain of our investments.

Changes in Level 3 Fair Value Measurements of Investments

The following tables provide the changes in fair value, broken out by security type, during the three and six months ended March 31, 2022 and 2021 for all investments for which we determine fair value using unobservable (Level 3) inputs.

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Fair Value Measurements Using Significant Unobservable Inputs (Level 3)


Three months ended March 31, 2022	Secured First Lien Debt		Secured Second Lien Debt		Unsecured Debt		Preferred Equity		Common Equity/ Equivalents		Total
Fair Value as of December 31, 2021	$	395,753	$	106,232	$	66	$	26,483	$	41,494	$	570,028
Total gains (losses):
Net realized gain (loss)(A)	—		—		—		—		—		—
Net unrealized appreciation (depreciation)(B)	(81)		(180)		(27)		1,452		(230)		934
Reversal of prior period net depreciation (appreciation) on realization(B)	(285)		117		—		—		1		(167)
New investments, repayments and settlements: (C)
Issuances/originations	12,120		166		25		—		—		12,311
Settlements/repayments	(29,605)		(20,837)		—		—		—		(50,442)
Net proceeds from sales	—		—		—		—		(1)		(1)
Fair Value as of March 31, 2022	$	377,902	$	85,498	$	64	$	27,935	$	41,264	$	532,663

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)


Six months ended March 31, 2022	Secured First Lien Debt		Secured Second Lien Debt		Unsecured Debt		Preferred Equity		Common Equity/ Equivalents		Total
Fair Value as of September 30, 2021	$	337,394	$	135,956	$	10	$	29,246	$	48,441	$	551,047
Total gains (losses):
Net realized gain (loss)(A)	—		—		—		—		13,876		13,876
Net unrealized appreciation (depreciation)(B)	4,412		379		29		791		292		5,903
Reversal of prior period net depreciation (appreciation) on realization(B)	(380)		(1,601)		—		(4,281)		(9,113)		(15,375)
New investments, repayments and settlements: (C)
Issuances/originations	86,823		30,336		25		3,500		3,500		124,184
Settlements/repayments	(50,347)		(79,572)		—		—		—		(129,919)
Net proceeds from sales	—		—		—		(1,321)		(15,732)		(17,053)
Fair Value as of March 31, 2022	$	377,902	$	85,498	$	64	$	27,935	$	41,264	$	532,663

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Fair Value Measurements Using Significant Unobservable Inputs (Level 3)


Three months ended March 31, 2021	Secured First Lien Debt		Secured Second Lien Debt		Unsecured Debt		Preferred Equity		Common Equity/ Equivalents		Total
Fair Value as of December 31, 2020	$	219,921	$	194,219	$	15	$	9,236	$	24,473	$	447,864
Total gains (losses):
Net realized gain (loss)(A)	—		—		—		—		—		—
Net unrealized appreciation (depreciation)(B)	1,156		2,190		(2)		(385)		12,986		15,945
Reversal of prior period net depreciation (appreciation) on realization(B)	20		(210)		—		—		—		(190)
New investments, repayments and settlements: (C)
Issuances/originations	64,210		217		—		7,000		1,000		72,427
Settlements/repayments	(11,845)		(36,159)		—		—		—		(48,004)
Fair Value as of March 31, 2021	$	273,462	$	160,257	$	13	$	15,851	$	38,459	$	488,042

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)


Six months ended March 31, 2021	Secured First Lien Debt		Secured Second Lien Debt		Unsecured Debt		Preferred Equity		Common Equity/ Equivalents		Total
Fair Value as of September 30, 2020	$	213,468	$	196,986	$	4,299	$	7,000	$	23,881	$	445,634
Total gains (losses):
Net realized gain (loss)(A)	—		—		—		—		(2,393)		(2,393)
Net unrealized appreciation (depreciation)(B)	2,088		3,199		(4)		(247)		16,283		21,319
Reversal of prior period net depreciation (appreciation) on realization(B)	20		(210)		133		—		2,950		2,893
New investments, repayments and settlements: (C)
Issuances/originations	91,414		554		113		9,098		1,000		102,179
Settlements/repayments	(13,528)		(60,272)		(4,528)		—		—		(78,328)
Net proceeds from sales	—		—		—		—		(3,262)		(3,262)
Transfers	(20,000)		20,000		—		—		—		—
Fair Value as of March 31, 2021	$	273,462	$	160,257	$	13	$	15,851	$	38,459	$	488,042

(A)Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of Operations for the corresponding period.

(B)Included in net unrealized appreciation (depreciation) on investments on our accompanying Consolidated Statements of Operations for the corresponding period.

(C)Includes increases in the cost basis of investments resulting from new portfolio investments, accretion of discounts, PIK, and other non-cash disbursements to portfolio companies, as well as decreases in the cost basis of investments resulting from principal repayments or sales, the amortization of premiums and acquisition costs and other cost-basis adjustments.

Investment Activity

Proprietary Investments

As of March 31, 2022 and September 30, 2021, we held 39 and 38 proprietary investments with an aggregate fair value of $514.6 million and $525.9 million, or 95.7% and 94.3% of the total investment portfolio at fair value, respectively. The following significant proprietary investment transactions occurred during the six months ended March 31, 2022:

•In October 2021, we invested $26.3 million in Engineering Manufacturing Technologies, LLC through secured first lien debt and equity.

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•In November 2021, our investment in Lignetics, Inc. was sold, which resulted in the recognition of success fee income of $1.6 million and a realized gain of $13.4 million. In connection with the sale, we received net cash proceeds of approximately $47.2 million, including the repayment of our debt investment of $29.0 million at par.

•In November 2021, our investment in Prophet Brand Strategy paid off at par for net cash proceeds of $13.1 million. In conjunction with the payoff, we received a prepayment fee of $0.1 million.

•In November 2021, our investment in Effective School Solutions LLC paid off at par for net cash proceeds of $19.5 million. In conjunction with the payoff, we received a prepayment fee of $0.5 million.

•In November 2021, we invested $13.4 million in WB Xcel Holdings, LLC through secured first lien debt and equity.

•In December 2021, our investment in Phoenix Aromas & Essential Oils, LLC paid off at par for net cash proceeds of $10.0 million.

•In December 2021, we invested $10.0 million in Fix-it Group, Inc. through secured first lien debt.

•In December 2021, we invested $10.5 million in Workforce QA LLC through secured first lien debt and equity.

•In December 2021, we invested $30.0 million in Springfield, Inc. through secured second lien debt.

•In December 2021, we invested $16.8 million in HH-Inspire Acquisition, Inc. through secured first lien debt and equity.

•In January 2022, our investment in Belnick, Inc. paid off at par for net cash proceeds of $10.0 million.

•In March 2022, we invested $5.0 million in Pansophic Learning Ltd., an existing portfolio company, through secured first lien debt.

•In March 2022, our investment in NetFortris Corp. was sold, which resulted in the recognition of success fee income of $3.2 million. In connection with the sale, we received net cash proceeds of $29.0 million, including the repayment of our debt investment of $28.8 million at par. We continue to retain an equity investment in NetFortris Holdings, LLC with a cost basis of $0.8 million and fair value of $0.6 million as of March 31, 2022.

Syndicated Investments

As of March 31, 2022 and September 30, 2021, we held six and eight syndicated investments with an aggregate fair value of $23.1 million and $31.7 million, or 4.3% and 5.7% of the total investment portfolio at fair value, respectively. The following significant syndicated investment transaction occurred during the six months ended March 31, 2022:

•In November 2021, our investment in Medical Solutions Holdings, Inc. paid off at par for net cash proceeds of $6.0 million.

•In January 2022, our investment in Keystone Acquisition Corp. paid off at par for net cash proceeds of $4.0 million.

Investment Concentrations

As of March 31, 2022, our investment portfolio consisted of investments in 45 portfolio companies located in 22 states in 13 different industries, with an aggregate fair value of $537.7 million. The five largest investments at fair value as of March 31, 2022 totaled $158.4 million, or 29.5% of our total investment portfolio, as compared to the five largest investments at fair value as of September 30, 2021 totaling $166.2 million, or 29.8% of our total investment portfolio. As of each of March 31, 2022 and September 30, 2021, our average investment by obligor was $11.9 million at cost.

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The following table outlines our investments by security type as of March 31, 2022 and September 30, 2021:


	March 31, 2022								September 30, 2021
	Cost				Fair Value				Cost				Fair Value
Secured first lien debt	$	399,092	74.3	%	$	377,902	70.3	%	$	362,616	66.3	%	$	337,394	60.5	%
Secured second lien debt	88,407		16.4		85,498		15.9		137,643		25.2		135,956		24.4
Unsecured debt	318		0.1		64		0.0		293		0.1		10		—
Total debt investments	487,817		90.8		463,464		86.2		500,552		91.6		473,360		84.9
Preferred equity	31,409		5.8		27,935		5.2		29,230		5.3		29,246		5.2
Common equity/equivalents	18,239		3.4		46,304		8.6		16,730		3.1		55,006		9.9
Total equity investments	49,648		9.2		74,239		13.8		45,960		8.4		84,252		15.1
Total Investments	$	537,465	100.0	%	$	537,703	100.0	%	$	546,512	100.0	%	$	557,612	100.0	%

Our investments at fair value consisted of the following industry classifications as of March 31, 2022 and September 30, 2021:


	March 31, 2022				September 30, 2021
Industry Classification	Fair Value		Percentage of Total Investments		Fair Value		Percentage of Total Investments
Diversified/Conglomerate Service	$	135,453	25.2	%	$	132,458	23.8	%
Healthcare, Education, and Childcare	87,654		16.3		92,680		16.6
Diversified/Conglomerate Manufacturing	81,327		15.1		25,223		4.5
Aerospace and Defense	78,751		14.7		79,749		14.3
Beverage, Food, and Tobacco	47,151		8.8		48,385		8.7
Oil and Gas	25,631		4.8		25,861		4.6
Automobile	21,662		4.0		21,681		3.9
Personal and Non-Durable Consumer Products	17,913		3.3		1,542		0.3
Telecommunications	14,400		2.7		36,720		6.6
Textiles and Leather	11,460		2.1		10,030		1.8
Machinery	10,430		1.9		10,472		1.9
Diversified Natural Resources, Precious Metals and Minerals	—		—		47,134		8.4
Chemicals, Plastics and Rubber	—		—		10,062		1.8
Home and Office Furnishings, Housewares, and Durable Consumer Products	—		—		10,025		1.8
Other, < 2.0%	5,871		1.1		5,590		1.0
Total Investments	$	537,703	100.0	%	$	557,612	100.0	%

Our investments at fair value were included in the following U.S. geographic regions as of March 31, 2022 and September 30, 2021:


	March 31, 2022				September 30, 2021
Location	Fair Value		Percentage of Total Investments		Fair Value		Percentage of Total Investments
South	$	254,309	47.3	%	$	238,917	42.8	%
West	139,513		25.9		184,247		33.0
Midwest	109,221		20.3		85,970		15.5
Northeast	34,660		6.5		48,478		8.7
Total Investments	$	537,703	100.0	%	$	557,612	100.0	%

The geographic composition indicates the location of the headquarters for our portfolio companies. A portfolio company may have additional locations in other geographic regions.

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Investment Principal Repayments

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of March 31, 2022:


		Amount
For the remaining six months ending September 30:	2022(A)	$	23,440
For the fiscal years ending September 30:	2023	27,469
	2024	66,011
	2025	82,477
	2026	146,035
	Thereafter	143,424
	Total contractual repayments	$	488,856
	Adjustments to cost basis of debt investments	(1,039)
	Investments in equity securities	49,648
	Investments held as of March 31, 2022 at cost:	$	537,465

(A)Includes debt investments with contractual principal amounts totaling $16.8 million for which the maturity date has passed as of March 31, 2022.

Receivables from Portfolio Companies

Receivables from portfolio companies represent non-recurring costs incurred on behalf of such portfolio companies and are included in other assets on our accompanying Consolidated Statements of Assets and Liabilities. We generally maintain an allowance for uncollectible receivables from portfolio companies when the receivable balance becomes 90 days or more past due or if it is determined, based upon management’s judgment, that the portfolio company is unable to pay its obligations. We write off accounts receivable when we have exhausted collection efforts and have deemed the receivables uncollectible. As of March 31, 2022 and September 30, 2021, we had gross receivables from portfolio companies of $1.3 million and $0.7 million, respectively. The allowance for uncollectible receivables was $0 as of each of March 31, 2022 and September 30, 2021.

NOTE 4. RELATED PARTY TRANSACTIONS

Transactions with the Adviser

We have been externally managed by the Adviser pursuant to the Advisory Agreement since October 1, 2004 pursuant to which we pay the Adviser a base management fee and an incentive fee for its services. On July 13, 2021, our Board of Directors, including a majority of the directors who are not parties to the Advisory Agreement or interested persons of us or the Adviser, unanimously approved the renewal of the Advisory Agreement through August 31, 2022.

We also pay the Adviser a loan servicing fee for its role of servicer pursuant to our Credit Facility. The entire loan servicing fee paid to the Adviser by Business Loan is non-contractually, unconditionally and irrevocably credited against the base management fee otherwise payable to the Adviser, since Business Loan is a consolidated subsidiary of ours, and overall, the base management fee (including any loan servicing fee) cannot exceed 1.75% of total assets (including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings) during any given fiscal year pursuant to the Advisory Agreement.

Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer), serve as directors and executive officers of the Adviser, which, as of March 31, 2022, is 100% indirectly owned and controlled by Mr. Gladstone. Robert Marcotte (our president) also serves as executive vice president of private equity (debt) of the Adviser. Michael LiCalsi, our general counsel and secretary (who also serves as the Administrator’s president, general counsel and secretary), is also the executive vice president of administration of our Adviser.

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The following table summarizes the base management fee, incentive fee, and loan servicing fee and associated non-contractual, unconditional and irrevocable credits reflected in our accompanying Consolidated Statements of Operations:


	Three Months Ended March 31,						Six Months Ended March 31,
	2022			2021			2022			2021
Average total assets subject to base management fee(A)	$	566,629		$	478,857		$	571,314		$	468,229
Multiplied by prorated annual base management fee of 1.75%	0.4375		%	0.4375		%	0.8750		%	0.8750		%
Base management fee(B)	$	2,479		$	2,095		$	4,999		$	4,097
Portfolio company fee credit	(59)			(574)			(1,928)			(926)
Syndicated loan fee credit	(43)			(81)			(101)			(168)
Net Base Management Fee	$	2,377		$	1,440		$	2,970		$	3,003
Loan servicing fee(B)	1,520			1,396			2,982			2,744
Credit to base management fee - loan servicing fee(B)	(1,520)			(1,396)			(2,982)			(2,744)
Net Loan Servicing Fee	$	—		$	—		$	—		$	—
Incentive fee(B)	1,971			1,381			4,062			2,748
Incentive fee credit	—			(225)			—			(436)
Net Incentive Fee	$	1,971		$	1,156		$	4,062		$	2,312
Portfolio company fee credit	(59)			(574)			(1,928)			(926)
Syndicated loan fee credit	(43)			(81)			(101)			(168)
Incentive fee credit	—			(225)			—			(436)
Credits to Fees From Adviser - other(B)	$	(102)		$	(880)		$	(2,029)		$	(1,530)

(A)Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the two most recently completed quarters within the respective years and adjusted appropriately for any share issuances or repurchases during the period.

(B)Reflected as a line item on our accompanying Consolidated Statements of Operations.

Base Management Fee

The base management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 1.75%, computed on the basis of the value of our average total assets at the end of the two most recently-completed quarters (inclusive of the current quarter), which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings and adjusted appropriately for any share issuances or repurchases during the period.

Additionally, pursuant to the requirements of the 1940 Act, the Adviser makes available significant managerial assistance to our portfolio companies. The Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than managerial assistance. Such services may include: (i) assistance obtaining, sourcing or structuring credit facilities, long term loans or additional equity from unaffiliated third parties; (ii) negotiating important contractual financial relationships; (iii) consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties; and (iv) taking a primary role in interviewing, vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio company management team members. The Adviser non-contractually, unconditionally, and irrevocably credits 100% of any fees for such services against the base management fee that we would otherwise be required to pay to the Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees, totaling $15 thousand for each of the three and six months ended March 31, 2021, was retained by the Adviser in the form of reimbursement, at cost, for tasks completed by personnel of the Adviser primarily for the valuation of portfolio companies. No such amounts were retained by the Adviser for the three and six months ended March 31, 2022.

Our Board of Directors accepted a non-contractual, unconditional, and irrevocable credit from the Adviser to reduce the annual base management fee on syndicated loan participations to 0.5%, to the extent that proceeds resulting from borrowings were used to purchase such syndicated loan participations, for each of the three and six months ended March 31, 2022 and 2021.

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Loan Servicing Fee

The Adviser also services the loans held by Business Loan (the borrower under the Credit Facility), in return for which the Adviser receives a 1.5% annual fee payable monthly based on the aggregate outstanding balance of loans pledged under our Credit Facility. As discussed in the notes to the table above, we treat payment of the loan servicing fee pursuant to the Credit Facility as a pre-payment of the base management fee under the Advisory Agreement. Accordingly, these loan servicing fees are 100% non-contractually, unconditionally and irrevocably credited back to us by the Adviser.

Incentive Fee

The incentive fee consists of two parts: an income-based incentive fee and a capital gains-based incentive fee. The income-based incentive fee rewards the Adviser if our quarterly net investment income (before giving effect to any incentive fee) exceeds 1.75% (2.0% during the period from April 1, 2020 through March 31, 2023) of our net assets, which we define as total assets less indebtedness and before taking into account any incentive fees payable or contractually due but not payable during the period, at the end of the immediately preceding calendar quarter, adjusted appropriately for any share issuances or repurchases during the period (the “hurdle rate”). The income-based incentive fee with respect to our pre-incentive fee net investment income is generally payable quarterly to the Adviser and is computed as follows:

•no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate;

•100.0% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% (2.4375% during the period from April 1, 2020 through March 31, 2022 and 2.50% from April 1, 2022 through March 31, 2023) of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter; and

•20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% (2.4375% during the period from April 1, 2020 through March 31, 2022 and 2.50% from April 1, 2022 through March 31, 2023) of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter.

On April 12, 2022, our Board of Directors approved an amendment of the Advisory Agreement which extended the temporary revision to the hurdle rate through March 31, 2023 and increased the excess incentive fee hurdle rate from 2.1875% per quarter (8.75% annualized) to 2.50% per quarter (10.0% annualized), up from the 2.4375% per quarter (9.75% annualized) in effect since April 1, 2020.

The second part of the incentive fee is a capital gains-based incentive fee that is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date) and equals 20.0% of our “net realized capital gains” (as defined herein) as of the end of the fiscal year. In determining the capital gains-based incentive fee payable to the Adviser, we calculate “net realized capital gains” at the end of each applicable year by subtracting the sum of our cumulative aggregate realized capital losses and our entire portfolio’s aggregate unrealized capital depreciation from our cumulative aggregate realized capital gains. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original cost of such investment since inception. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such investment since inception. The entire portfolio’s aggregate unrealized capital depreciation, if any, equals the sum of the difference between the valuation of each investment as of the applicable calculation date and the original cost of such investment. At the end of the applicable fiscal year, the amount of capital gains that serves as the basis for our calculation of the capital gains-based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less the entire portfolio’s aggregate unrealized capital depreciation, if any. If this number is positive at the end of such fiscal year, then the capital gains-based incentive fee for such year equals 20.0% of such amount, less the aggregate amount of any capital gains-based incentive fees paid in respect of our portfolio in all prior years. No capital gains-based incentive fee has been recorded or paid since our inception through March 31, 2022, as cumulative unrealized capital depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses.

In accordance with GAAP, a capital gains-based incentive fee accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation and depreciation. If such amount is

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positive at the end of a period, then GAAP requires us to record a capital gains-based incentive fee equal to 20.0% of such amount, less the aggregate amount of actual capital gains-based incentive fees paid in all prior years. If such amount is negative, then there is no accrual for such period. GAAP requires that the capital gains-based incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains-based incentive fee would be payable if such unrealized capital appreciation were realized. There can be no assurance that such unrealized capital appreciation will be realized in the future. No GAAP accrual for a capital gains-based incentive fee has been recorded from our inception through March 31, 2022.

Our Board of Directors accepted non-contractual, unconditional and irrevocable credits from the Adviser to reduce the income-based incentive fee to the extent net investment income did not 100.0% cover distributions to common stockholders for the three and six months ended March 31, 2021. There was no incentive fee credit during the three and six months ended March 31, 2022.

Transactions with the Administrator

We have entered into the Administration Agreement with the Administrator to provide administrative services. We reimburse the Administrator pursuant to the Administration Agreement for the portion of expenses the Administrator incurs while performing services for us. The Administrator’s expenses are primarily rent and the salaries, benefits and expenses of the Administrator’s employees, including: our chief financial officer and treasurer, chief compliance officer, chief valuation officer, and general counsel and secretary (who also serves as the Administrator’s president, general counsel and secretary) and their respective staffs. Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer) serve as members of the board of managers and executive officers of the Administrator, which, as of March 31, 2022, is 100% indirectly owned and controlled by Mr. Gladstone. Another of our officers, Michael LiCalsi (our general counsel and secretary), serves as the Administrator’s president as well as the executive vice president of administration for the Adviser.

Our allocable portion of the Administrator’s expenses is generally derived by multiplying the Administrator’s total expenses by the approximate percentage of time during the current quarter the Administrator’s employees performed services for us in relation to their time spent performing services for all companies serviced by the Administrator. On July 13, 2021, our Board of Directors, including a majority of the directors who are not parties to the Administration Agreement or interested persons of either party, approved the renewal of the Administration Agreement through August 31, 2022.

Other Transactions

Gladstone Securities, LLC (“Gladstone Securities”), a privately-held broker-dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation, which is 100% indirectly owned and controlled by Mr. Gladstone, our chairman and chief executive officer, has provided other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which Gladstone Securities receives a fee. Any such fees paid by portfolio companies to Gladstone Securities do not impact the fees we pay to the Adviser or the non-contractual, unconditional and irrevocable credits against the base management fee or incentive fee. Gladstone Securities received fees from portfolio companies totaling $25 thousand and $0.6 million during the three and six months ended March 31, 2022, respectively, and $0.3 million and $0.4 million during the three and six months ended March 31, 2021, respectively.

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Related Party Fees Due

Amounts due to related parties on our accompanying Consolidated Statements of Assets and Liabilities were as follows:


	March 31, 2022		September 30, 2021
Base management fee due to Adviser	$	857	$	385
Loan servicing fee due to Adviser	370		343
Incentive fee due to Adviser	1,971		1,527
Total fees due to Adviser	3,198		2,255
Fee due to Administrator	579		382
Total Related Party Fees Due	$	3,777	$	2,637

In addition to the above fees, other operating expenses due to the Adviser as of March 31, 2022 and September 30, 2021, totaled $38 thousand and $35 thousand, respectively. In addition, net expenses payable to Gladstone Investment Corporation (for reimbursement purposes), which includes certain co-investment expenses, totaled $27 thousand and $38 thousand as of March 31, 2022 and September 30, 2021, respectively. These amounts are generally settled in the quarter subsequent to being incurred and are included in other liabilities on the accompanying Consolidated Statements of Assets and Liabilities as of March 31, 2022 and September 30, 2021.

NOTE 5. BORROWINGS

Revolving Credit Facility

On May 13, 2021, we, through Business Loan, amended and restated the Credit Facility to, among other things, (i) decrease the commitment amount from $205.0 million to $175.0 million, (ii) extend the revolving period end date to October 31, 2023, (iii) extend the maturity date to October 31, 2025 (at which time all principal and interest will be due and payable if the Credit Facility is not extended by the revolving period end date), (iv) reduce the interest rate margin to 2.70% during the revolving period and 3.25% thereafter, with a LIBOR floor of 0.35%, (v) revise the unused fee to include an additional fee tier of 0.35% per annum on the daily undrawn amounts if the average unused amount is equal to or less than 35% during the applicable period, (vi) provide for certain excess concentration limits, including a reduced second lien limit and a new broadly syndicated loan limit and (vii) add customary LIBOR replacement language. We incurred fees of approximately $1.1 million in connection with this amendment and restatement, which are being amortized through our Credit Facility’s revolving period end date of October 31, 2023.

The following tables summarize noteworthy information related to our Credit Facility:


	March 31, 2022		September 30, 2021
Commitment amount	$	175,000	$	175,000
Borrowings outstanding, at cost	17,400		50,500
Availability(A)	138,093		103,897


	For the Three Months Ended March 31,						For the Six Months Ended March 31,
	2022			2021			2022			2021
Weighted average borrowings outstanding, at cost	$	42,491		$	69,418		$	37,677		$	87,442
Weighted average interest rate(B)	5.9		%	4.6		%	6.6		%	4.0		%
Commitment (unused) fees incurred	$	344		$	272		$	679		$	424

(A) Available borrowings are subject to various constraints imposed under our Credit Facility, based on the aggregate loan balance pledged by Business Loan, which varies as loans are added and repaid, regardless of whether such repayments are prepayments or made as contractually required.

(B) Includes unused commitment fees and excludes the impact of deferred financing costs.

Our Credit Facility also requires that any interest or principal payments on pledged loans be remitted directly by the borrower into a lockbox account with KeyBank. KeyBank is also the trustee of the account and generally remits the

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collected funds to us once each month. Amounts collected in the lockbox account with KeyBank are presented as Due from administrative agent on the accompanying Consolidated Statement of Assets and Liabilities as of March 31, 2022 and September 30, 2021.

Our Credit Facility contains covenants that require Business Loan to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions), and restrict material changes to our credit and collection policies without the lenders’ consent. Our Credit Facility also generally limits distributions to our stockholders on a fiscal year basis to the sum of our net investment income, net capital gains and amounts elected to have been paid during the prior year in accordance with Section 855(a) of the Code. Business Loan is also subject to certain limitations on the type of loan investments it can apply as collateral towards the borrowing base to receive additional borrowing availability under our Credit Facility, including restrictions on geographic concentrations, sector concentrations, loan size, payment frequency and status, average life and lien property. Our Credit Facility further requires Business Loan to comply with other financial and operational covenants, which obligate Business Loan to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of 25 obligors required in the borrowing base.

Additionally, we are required to maintain (i) a minimum net worth (defined in our Credit Facility to include any outstanding mandatorily redeemable preferred stock) of $325.0 million plus 50.0% of all equity and subordinated debt raised after May 13, 2021 less 50% of any equity and subordinated debt retired or redeemed after May 13, 2021, which equates to $334.4 million as of March 31, 2022, (ii) asset coverage with respect to “senior securities representing indebtedness” of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.

As of March 31, 2022, and as defined in our Credit Facility, we had a net worth of $522.0 million, asset coverage on our “senior securities representing indebtedness” of 246.6%, calculated in accordance with the requirements of Section 18 and 61 of the 1940 Act, and an active status as a BDC and RIC. In addition, we had 29 obligors in our Credit Facility’s borrowing base as of March 31, 2022. As of March 31, 2022, we were in compliance with all of our Credit Facility covenants.

Fair Value

We elected to apply the fair value option of ASC 825, “Financial Instruments,” specifically for the Credit Facility, which was consistent with our application of ASC 820 to our investments. Generally, the fair value of our Credit Facility is determined using a yield analysis which includes a DCF calculation and the assumptions that the Valuation Team believes market participants would use, including the estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. As of March 31, 2022, the discount rate used to determine the fair value of our Credit Facility was 30-day LIBOR, plus 2.70% per annum, plus a 1.00% unused commitment fee. As of September 30, 2021, the discount rate used to determine the fair value of our Credit Facility was 30-day LIBOR, plus 2.97% per annum, plus a 1.00% unused commitment fee. Generally, an increase or decrease in the discount rate used in the DCF calculation may result in a corresponding decrease or increase, respectively, in the fair value of our Credit Facility. As of March 31, 2022 and September 30, 2021, our Credit Facility was valued using Level 3 inputs and any changes in its fair value are recorded in net unrealized depreciation (appreciation) of other on our accompanying Consolidated Statements of Operations.

The following tables present our Credit Facility carried at fair value as of March 31, 2022 and September 30, 2021, on our accompanying Consolidated Statements of Assets and Liabilities for Level 3 of the hierarchy established by ASC 820 and the changes in fair value of our Credit Facility during the three and six months ended March 31, 2022 and 2021:


	Total Recurring Fair Value Measurement Reported in
	Consolidated Statements of Assets and Liabilities Using Significant Unobservable Inputs (Level 3)
	March 31, 2022		September 30, 2021
Credit Facility	$	17,400	$	50,500

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Fair Value Measurements Using Significant Unobservable Data Inputs (Level 3)
	Three Months Ended March 31,
	2022		2021
Fair value as of December 31, 2021 and 2020, respectively	$	53,900	$	16,270
Borrowings	23,300		136,100
Repayments	(59,800)		(111,200)
Net unrealized appreciation(A)	—		20
Fair Value as of March 31, 2022 and 2021, respectively	$	17,400	$	41,190


Fair Value Measurements Using Significant Unobservable Data Inputs (Level 3)
	Six Months Ended March 31,
	2022		2021
Fair value as of September 30, 2021 and 2020, respectively	$	50,500	$	127,650
Borrowings	161,500		157,600
Repayments	(194,600)		(244,400)
Net unrealized appreciation(A)	—		340
Fair Value as of March 31, 2022 and 2021, respectively	$	17,400	$	41,190

(A) Included in net unrealized appreciation (depreciation) of other on our accompanying Consolidated Statements of Operations for the three and six months ended March 31, 2022 and 2021.

The fair value of the collateral under our Credit Facility totaled approximately $478.3 million and $512.0 million as of March 31, 2022 and September 30, 2021, respectively.

Notes Payable

In November 2021, we completed a private placement of $50.0 million aggregate principal amount of 3.75% Notes due 2027 (the “2027 Notes”) for net proceeds of approximately $48.5 million after deducting initial purchasers’ costs, commissions and offering expenses borne by us. The 2027 Notes will mature on May 1, 2027 and may be redeemed in whole or in part at any time or from time to time at the Company’s option prior to maturity at par plus a “make-whole” premium, if applicable. The 2027 Notes bear interest at a rate of 3.75% per year. Interest is payable semi-annually on May 1 and November 1 of each year (which equates to approximately $1.9 million per year) beginning May 1, 2022.

In December 2020, we completed a debt offering of $100.0 million aggregate principal amount of 5.125% Notes due 2026 (the “2026 Notes”) for net proceeds of approximately $97.7 million after deducting underwriting discounts, commissions and offering expenses borne by us. In March 2021, we completed a debt offering of an additional $50.0 million aggregate principal amount of the 2026 Notes for net proceeds of approximately $50.6 million after adding premiums and deducting underwriting costs, commissions and offering expenses borne by us. The 2026 Notes will mature on January 31, 2026 and may be redeemed in whole or in part at any time or from time to time at the Company’s option prior to maturity at par plus a “make-whole” premium, if applicable. The 2026 Notes bear interest at a rate of 5.125% per year. Interest is payable semi-annually on January 31 and July 31 of each year (which equates to approximately $7.7 million per year).

In October 2019, we completed a public debt offering of $38.8 million aggregate principal amount of 5.375% Notes due 2024 (the “2024 Notes”), inclusive of the overallotment option exercised by the underwriters, for net proceeds of approximately $37.5 million after deducting underwriting discounts, commissions and offering expenses borne by us. On November 1, 2021, we voluntarily redeemed the 2024 Notes with an aggregate principal amount outstanding of $38.8 million. In connection with the voluntary redemption of the 2024 Notes, we incurred a loss on extinguishment of debt of $0.8 million, which is primarily comprised of the unamortized deferred issuance costs at the time of redemption. The 2024 Notes would have otherwise matured on November 1, 2024.

In November 2018, we completed a public debt offering of $57.5 million aggregate principal amount of 6.125% Notes due 2023 (the “2023 Notes”), inclusive of the overallotment option exercised by the underwriters, for net proceeds of $55.4 million after deducting underwriting discounts, commissions and offering expenses borne by us. On January 7, 2021, we voluntarily redeemed the 2023 Notes with an aggregate principal amount outstanding of $57.5 million. The redemption amount was $58.1 million inclusive of accrued interest through the date of redemption. In connection with the voluntary

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redemption of the 2023 Notes, we incurred a loss on extinguishment of debt of $1.2 million, which is primarily comprised of the unamortized deferred issuance costs at the time of redemption. The 2023 Notes would have otherwise matured on November 1, 2023.

The indenture relating to the 2027 Notes and the 2026 Notes contains certain covenants, including (i) an inability to incur additional debt or issue additional debt or preferred securities unless the Company’s asset coverage meets the threshold specified in the 1940 Act after such borrowing, (ii) an inability to declare any dividend or distribution (except a dividend payable in our stock) on a class of our capital stock or to purchase shares of our capital stock unless the Company’s asset coverage meets the threshold specified in the 1940 Act at the time of (and giving effect to) such declaration or purchase, and (iii) if, at any time, we are not subject to the reporting requirements of the Exchange Act, we will provide the holders of the 2027 Notes and the 2026 Notes, as applicable, and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements.

The 2027 Notes and 2026 Notes are recorded at the principal amount, plus applicable premiums, less discounts and offering costs, on our Consolidated Statements of Assets and Liabilities.

The fair value, based on a DCF analysis, of the 2027 Notes as of March 31, 2022 was $46.5 million. The fair value, based on a DCF analysis, of the 2026 Notes as of March 31, 2022 was $150.0 million. We consider the 2027 Notes and 2026 Notes to be Level 3 within the ASC 820 fair value hierarchy.

NOTE 6. REGISTRATION STATEMENT AND COMMON EQUITY OFFERINGS

Our shelf registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common stock or preferred stock. As of March 31, 2022, we had the ability to issue up to $300.0 million in securities under the registration statement.

NOTE 7. NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER WEIGHTED AVERAGE COMMON SHARE

The following table sets forth the computation of basic and diluted net increase (decrease) in net assets resulting from operations per weighted average common share for the three and six months ended March 31, 2022 and 2021:


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Numerator: basic and diluted net increase (decrease) in net assets resulting from operations per common share	$	8,303	$	21,299	$	20,406	$	33,602
Denominator: basic and diluted weighted average common share	34,304,371		32,765,980		34,304,371		32,428,089
Basic and diluted net increase (decrease) in net assets resulting from operations per common share	$	0.24	$	0.65	$	0.59	$	1.03

NOTE 8. DISTRIBUTIONS TO COMMON STOCKHOLDERS

To qualify to be taxed as a RIC under Subchapter M of the Code, we must generally distribute to our stockholders, for each taxable year, at least 90% of our taxable ordinary income plus the excess of our net short-term capital gains over net long-term capital losses (“Investment Company Taxable Income”). The amount to be paid out as distributions to our stockholders is determined by our Board of Directors quarterly and is based on management’s estimate of Investment Company Taxable Income. Based on that estimate, our Board of Directors declares three monthly distributions to common stockholders each quarter.

The federal income tax characteristics of all distributions will be reported to stockholders on the IRS Form 1099 after the end of each calendar year. Estimates of tax characterization made on a quarterly basis may not be representative of the actual tax characterization of cash distributions for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date.

For the calendar year ended December 31, 2021, 100.0% of distributions to common stockholders were deemed to be paid from ordinary income for 1099 stockholder reporting purposes. For the calendar year ended December 31, 2020, 97.3% of

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distributions to common stockholders were deemed to be paid from ordinary income and 2.7% of distributions to common stockholders were deemed to be a return of capital for 1099 stockholder reporting purposes.

We paid the following monthly distributions to common stockholders for the six months ended March 31, 2022 and 2021:

Fiscal Year

Declaration Date

Record Date

Payment Date

Distribution per Common Share

2022

October 12, 2021

October 22, 2021

October 29, 2021

0.065

October 12, 2021

November 19, 2021

November 30, 2021

0.065

October 12, 2021

December 23, 2021

December 31, 2021

0.065

January 11, 2022

January 21, 2022

January 31, 2022

0.065

January 11, 2022

February 18, 2022

February 28, 2022

0.065

January 11, 2022

March 23, 2022

March 31, 2022

0.065

Six Months Ended March 31, 2022:

0.39

Fiscal Year

Declaration Date

Record Date

Payment Date

Distribution per Common Share

2021

October 13, 2020

October 23, 2020

October 30, 2020

0.065

October 13, 2020

November 20, 2020

November 30, 2020

0.065

October 13, 2020

December 23, 2020

December 31, 2020

0.065

January 12, 2021

January 22, 2021

January 29, 2021

0.065

January 12, 2021

February 17, 2021

February 26, 2021

0.065

January 12, 2021

March 18, 2021

March 31, 2021

0.065

Six Months Ended March 31, 2021:

0.39

Aggregate distributions declared and paid to our common stockholders were approximately $13.4 million and $12.7 million for the six months ended March 31, 2022 and 2021, respectively, and were declared based on estimates of Investment Company Taxable Income for the respective fiscal years. For the fiscal year ended September 30, 2021, distributions declared and paid exceeded taxable income available for common distributions resulting in a partial return of capital of approximately $1.0 million.

For the six months ended March 31, 2022 and the fiscal year ended September 30, 2021, we recorded the following adjustments for book-tax differences to reflect tax character. Results of operations, total net assets, and cash flows were not affected by these adjustments.


	Six Months Ended March 31, 2022		Year Ended September 30, 2021
Undistributed net investment income	$	(3,692)	$	39
Accumulated net realized losses	3,692		959
Capital in excess of par value	—		(998)

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NOTE 9. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are party to certain legal proceedings incidental to the normal course of our business. We are required to establish reserves for litigation matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish reserves. Based on current knowledge, we do not believe that loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have a material adverse effect on our financial condition, results of operations or cash flows. Additionally, based on our current knowledge, we do not believe such loss contingencies are both probable and estimable and therefore, as of March 31, 2022 and September 30, 2021, we had no established reserves for such loss contingencies.

Escrow Holdbacks

From time to time, we enter into arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used to satisfy potential obligations, as stipulated in the sales agreements. We record escrow amounts in Restricted cash and cash equivalents, if received in cash but subject to potential obligations or other contractual restrictions, or as escrow receivables in Other assets, net, if not yet received in cash, on our accompanying Consolidated Statements of Assets and Liabilities. We establish reserves and holdbacks against escrow amounts if we determine that it is probable and estimable that a portion of the escrow amounts will not ultimately be released or received at the end of the escrow period. Reserves and holdbacks against escrow amounts were $0.5 million and $0.3 million as of March 31, 2022 and September 30, 2021, respectively.

Financial Commitments and Obligations

We have lines of credit, delayed draw term loans, and an uncalled capital commitment with certain of our portfolio companies that have not been fully drawn. Since these commitments have expiration dates and we expect many will never be fully drawn, the total commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused lines of credit, the unused delayed draw term loans and the uncalled capital commitment as of March 31, 2022 and September 30, 2021 to be immaterial.

The following table summarizes the amounts of our unused lines of credit, delayed draw term loans and uncalled capital commitment, at cost, as of March 31, 2022 and September 30, 2021, which are not reflected as liabilities in the accompanying Consolidated Statements of Assets and Liabilities:


	March 31, 2022		September 30, 2021
Unused line of credit commitments(A)	$	29,153	$	25,549
Delayed draw term loans	28,754		27,984
Uncalled capital commitment	843		843
Total	$	58,750	$	54,376

(A) There may be specific covenant requirements that temporarily limit a portfolio company’s availability to draw on an unused line of credit commitment.

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NOTE 10. FINANCIAL HIGHLIGHTS


	Three Months Ended March 31,						Six Months Ended March 31,
	2022			2021			2022			2021
Per Common Share Data:
Net asset value at beginning of period(A)	$	9.44		$	7.61		$	9.28		$	7.40
Income from operations(B)
Net investment income	0.25			0.20			0.52			0.39
Net realized and unrealized gain (loss) on investments	(0.02)			0.49			0.08			0.69
Net realized and unrealized gain (loss) on other	0.01			(0.04)			(0.01)			(0.05)
Total from operations	0.24			0.65			0.59			1.03
Distributions to common stockholders from(B)(C)
Net investment income	(0.20)			(0.18)			(0.40)			(0.36)
Return of capital	—			(0.02)			—			(0.03)
Total distributions	(0.20)			(0.20)			(0.40)			(0.39)
Capital share transactions(B)
Anti-dilutive effect of common stock issuance(D)	—			0.05			—			0.07
Total capital share transactions	—			0.05			—			0.07
Other, net	0.01			—			0.02			—
Net asset value at end of period(A)	$	9.49		$	8.11		$	9.49		$	8.11
Per common share market value at beginning of period	$	11.59		$	8.86		$	11.30		$	7.41
Per common share market value at end of period	11.79			9.92			11.79			9.92
Total return(E)	3.51		%	14.26		%	7.95		%	39.92		%
Common stock outstanding at end of period(A)	34,304,371			33,396,426			34,304,371			33,396,426
Statement of Assets and Liabilities Data:
Net assets at end of period	$	325,467		$	270,888		$	325,467		$	270,888
Average net assets(F)	324,891			255,449			322,892			252,408
Senior Securities Data:
Borrowings under Credit Facility, at cost	17,400			41,200			17,400			41,200
Long term debt	200,000			188,813			200,000			188,813
Ratios/Supplemental Data:
Ratio of net expenses to average net assets – annualized(G)(H)	10.55		%	10.16		%	9.65		%	10.37		%
Ratio of net investment income to average net assets – annualized(I)	10.70		%	10.02		%	11.06		%	10.05		%

(A) Based on actual shares outstanding at the end of the corresponding period.

(B) Based on weighted average basic per share data.

(C) The tax character of distributions is determined based on taxable income calculated in accordance with income tax regulations, which may differ from amounts determined under GAAP.

(D) During the three months ended December 31, 2020, the anti-dilution was a result of issuing common shares during the period at a price above the then current NAV per share.

(E) Total return equals the change in the ending market value of our common stock from the beginning of the fiscal year, taking into account distributions reinvested in accordance with the terms of our dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital. For further information on the estimated character of our distributions to common stockholders, refer to Note 9—Distributions to Common Stockholders.

(F) Computed using the average of the balance of net assets at the end of each month of the reporting period.

(G) Ratio of net expenses to average net assets is computed using total expenses, net of credits from the Adviser, to the base management, loan servicing and incentive fees.

(H) Had we not received any non-contractual, unconditional and irrevocable credits of fees from the Adviser, the ratio of net expenses to average net assets would have been 12.56% and 12.78% for the three and six months ended March 31, 2022, respectively. and 13.76% and 13.80% for the three and six months ended March 31, 2021, respectively.

(I) Had we not received any non-contractual, unconditional and irrevocable credits of fees from the Adviser, the ratio of net investment income to average net assets would have been 8.72% and 7.98% for the three and six months ended March 31, 2022, respectively, and 6.48% and 6.68% for the three and six months ended March 31, 2021, respectively.

NOTE 11. SUBSEQUENT EVENTS

Portfolio Activity

In April 2022, we invested $12.0 million in Axios Industrial Group, LLC through secured first lien debt.

In April 2022, we invested $14.4 million in Salvo Technologies, Inc. through secured first lien debt and membership units.

Distributions and Dividends

On April 12, 2022, our Board of Directors declared the following monthly distributions to common stockholders:

Record Date

Payment Date

Distribution per Common Share

April 22, 2022

April 29, 2022

0.0675

May 20, 2022

May 31, 2022

0.0675

June 22, 2022

June 30, 2022

0.0675

Total for the Quarter:

0.2025

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All statements contained herein, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, our future operating results, our business prospects and the prospects of our portfolio companies, actual and potential conflicts of interest with Gladstone Management Corporation (the “Adviser”), our adviser, and its affiliates, the use of borrowed money to finance our investments, the adequacy of our financing sources and working capital, and our ability to co-invest, among other factors. In some cases, you can identify forward-looking statements by terminology such as “estimate,” “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “project,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative or variations of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include: (1) changes in the economy and the capital markets, including stock price volatility; (2) risks associated with negotiation and consummation of pending and future transactions; (3) the loss of one or more of our executive officers, in particular David Gladstone, Terry Lee Brubaker or Robert L. Marcotte; (4) changes in our investment objectives and strategy; (5) availability, terms (including the possibility of interest rate volatility) and deployment of capital; (6) changes in our industry, interest rates, exchange rates or the general economy; (7) our business prospects and the prospects of our portfolio companies; (8) the degree and nature of our competition; (9) changes in governmental regulation, tax rates and similar matters; (10) our ability to exit investments in a timely manner; (11) our ability to maintain our qualification as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”); (12) the impact of COVID-19 on the economy, our portfolio companies and the capital markets, including the measures taken by governmental authorities to address it, which may precipitate or exacerbate other risks and/or uncertainties and (13) those factors described herein, including Item 1A. “Risk Factors,” and in the “Risk Factors” section of our Annual Report on Form 10-K (our “Annual Report”) for the fiscal year ended September 30, 2021, filed with the U.S. Securities and Exchange Commission (“SEC”) on November 15, 2021. Additionally, many of the risks and uncertainties listed above, among others, are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic. We caution readers not to place undue reliance on any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. We have based forward-looking statements on information available to us on the date of this report. Except as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC from time to time, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained in this Quarterly Report on Form 10-Q are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended.

The following analysis of our financial condition and results of operations should be read in conjunction with our accompanying Consolidated Financial Statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report. Historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition or results of operations for any future periods. Except per share amounts, dollar amounts in the tables included herein are in thousands unless otherwise indicated.

OVERVIEW

General

We were incorporated under the Maryland General Corporation Law on May 30, 2001. We operate as an externally managed, closed-end, non-diversified management investment company, and have elected to be treated as a BDC under the 1940 Act. In addition, for federal income tax purposes we have elected to be treated as a RIC under the Code. To continue

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to qualify as a RIC for federal income tax purposes and obtain favorable RIC tax treatment, we must meet certain requirements, including certain minimum distribution requirements.

We were established for the purpose of investing in debt and equity securities of established private businesses operating in the U.S. Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established lower middle market businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. To achieve our investment objectives, our investment strategy is to invest in several categories of debt and equity securities, with each investment generally ranging from $8 million to $30 million, although investment size may vary, depending upon our total assets or available capital at the time of investment. We expect that our investment portfolio over time will consist of approximately 90.0% debt investments and 10.0% equity investments, at cost. As of March 31, 2022, our investment portfolio was made up of approximately 90.8% debt investments and 9.2% equity investments, at cost.

We focus on investing in lower middle market companies (which we generally define as companies with annual earnings before interest, taxes, depreciation and amortization of $3 million to $15 million) in the U.S. that meet certain criteria, including the following: the sustainability of the business’ free cash flow and its ability to grow it over time, adequate assets for loan collateral, experienced management teams with a significant ownership interest in the borrower, reasonable capitalization of the borrower, including an ample equity contribution or cushion based on prevailing enterprise valuation multiples and, to a lesser extent, the potential to realize appreciation and gain liquidity in our equity position, if any. We lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities. We seek to avoid investing in high-risk, early-stage enterprises. Our targeted portfolio companies are generally considered too small for the larger capital marketplace.

We invest by ourselves or jointly with other funds and/or management of the portfolio company, depending on the opportunity. In July 2012, the SEC granted us an exemptive order (the “Co-Investment Order”) that expanded our ability to co-invest, under certain circumstances, with certain of our affiliates, including Gladstone Investment Corporation, a BDC also managed by the Adviser, and any future BDC or closed-end management investment company that is advised (or sub-advised if it controls the fund) by the Adviser, or any combination of the foregoing, subject to the conditions in the Co-Investment Order. Since 2012, we have opportunistically made several co-investments with Gladstone Investment Corporation pursuant to the Co-Investment Order. We believe the Co-Investment Order has enhanced and will continue to enhance our ability to further our investment objectives and strategies. If we are participating in an investment with one or more co-investors, our investment is likely to be smaller than if we were investing alone.

We are externally managed by the Adviser, an investment adviser registered with the SEC and an affiliate of ours, pursuant to an investment advisory and management agreement. The Adviser manages our investment activities. We have also entered into an administration agreement with Gladstone Administration, LLC (the “Administrator”), an affiliate of ours and the Adviser, whereby we pay separately for administrative services.

Additionally, Gladstone Securities, LLC (“Gladstone Securities”), a privately-held broker-dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation, which is 100% indirectly owned and controlled by Mr. Gladstone, our chairman and chief executive officer, has provided other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which Gladstone Securities receives a fee.

Business

Portfolio and Investment Activity

In general, our investments in debt securities have a term of no more than seven years, accrue interest at variable rates (generally based on the 30-day London Interbank Offered Rate (“LIBOR”)) and, to a lesser extent, at fixed rates. We seek debt instruments that pay interest monthly or, at a minimum, quarterly, may have a success fee or deferred interest provision and are primarily interest only, with all principal and any accrued but unpaid interest due at maturity. Generally, success fees accrue at a set rate and are contractually due upon a change of control of a portfolio company, typically from an exit or sale. Some debt securities have deferred interest whereby some portion of the interest payment is added to the

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principal balance so that the interest is paid, together with the principal, at maturity. This form of deferred interest is often called paid-in-kind (“PIK”) interest.

Typically, our equity investments consist of common stock, preferred stock, limited liability company interests, or warrants to purchase the foregoing. Often, these equity investments occur in connection with our original investment, recapitalizing a business, or refinancing existing debt.

During the six months ended March 31, 2022, we invested $106.9 million in six new portfolio companies and extended $14.7 million in investments to existing portfolio companies. In addition, during the six months ended March 31, 2022, we exited seven portfolio companies through early payoffs. We received a total of $147.7 million in combined net proceeds and principal repayments from the aforementioned portfolio company exits, as well as principal repayments by existing portfolio companies, during the six months ended March 31, 2022. This activity resulted in a net decrease in our overall portfolio by one portfolio company (to 45) and a net decrease of $9.0 million in our portfolio at cost since September 30, 2021. From our initial public offering in August 2001 through March 31, 2022, we have made 589 different loans to, or investments in, 260 companies for a total of approximately $2.3 billion, before giving effect to principal repayments on investments and divestitures.

During the six months ended March 31, 2022, the following significant transactions occurred: