UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, DC
    20549
      Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    September 30, 2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934   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 200
    McLean, Virginia(Address of principal
    executive offices)

22102(Zip Code)   (703) 287-5800
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Common Stock, $0.001 par value per share

Nasdaq Global Select Market(Title of each Class)

(Name of exchange on which
    registered)   Securities registered pursuant to Section 12(g) of the
    Act: None
  o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. þ
    Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting
    company o.(Do not check if a smaller
    reporting company)   o þ
    Documents Incorporated by Reference. Form 10-K




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GLADSTONE
    CAPITAL CORPORATIONFORM 10-K
    FOR THE FISCAL YEAR ENDED
    SEPTEMBER 30, 2010
    TABLE OF CONTENTS
  PART IItem 1


Business


2Item 1A


Risk Factors


19Item 1B


Unresolved Staff Comments


35Item 2


Properties


35Item 3


Legal Proceedings


35Item 4


Removed and Reserved


35PART IIItem 5


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


35Item 6


Selected Financial Data


36Item 7


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


37Item 7A


Quantitative and Qualitative Disclosures About
    Market Risk


67Item 8


Financial Statements and Supplementary Data


69Item 9


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


111Item 9A


Controls and Procedures


111Item 9B


Other Information


111PART IIIItem 10


Directors, Executive Officers and Corporate
    Governance


111Item 11


Executive Compensation


111Item 12


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


112Item 13


Certain Relationships and Related Transactions,
    and Director Independence


112Item 14


Principal Accountant Fees and Services


112PART IVItem 15


Exhibits and Financial Statement Schedule


112SIGNATURES


114   1




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FORWARD-LOOKING
    STATEMENTS
  All statements contained herein, other than historical facts,
    may constitute forward-looking statements. These
    statements may relate to, among other things, future events or
    our future performance or financial condition. In some cases,
    you can identify forward-looking statements by terminology such
    as may, might, believe,
    will, provided, anticipate,
    future, could, growth,
    plan, intend, expect,
    should, would, if,
    seek, possible, potential,
    likely or the negative 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, among others: (1) further adverse changes in the
    economy and the capital markets; (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 George
    Stelljes III; (4) changes in our business strategy;
    (5) availability, terms and deployment of capital;
    (6) changes in our industry, interest rates, exchange rates
    or the general economy; (7) the degree and nature of our
    competition; and (8) those factors described in the
    Risk Factors section of this
    Form 10-K.
    We caution readers not to place undue reliance on any such
    forward-looking statements. 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
    Form 10-K.
 PART I (Dollar
    amounts in thousands, unless otherwise indicated)
  In this Annual Report on
    Form 10-K,
    or Annual Report, the Company, we,
    us, and our refer to Gladstone Capital
    Corporation and its wholly-owned subsidiaries unless the context
    otherwise indicates.
  Item 1.
    Business  Overview
       2




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
    Senior Loans.  We seek to invest a portion of
    our assets in senior notes of borrowers. Using its assets and
    cash flow as collateral, the borrower typically uses senior
    notes to cover a substantial portion of the funding needed to
    operate. Senior lenders are exposed to the least risk of all
    providers of debt because they command a senior position with
    respect to scheduled interest and principal payments and assets
    of the borrower. However, unlike senior subordinated and junior
    subordinated lenders, these senior lenders typically do not
    receive any stock, warrants to purchase stock of the borrowers
    or other yield enhancements. As such, they generally do not
    participate in the equity appreciation of the value of the
    business. Senior notes may include revolving lines of credit,
    senior term loans, senior syndicated loans and senior last-out
    tranche loans.
    Senior Subordinated Loans.  We seek to invest a
    portion of our assets in senior subordinated notes, which
    include second lien notes. Holders of senior subordinated notes
    are subordinated to the rights of holders of senior debt in
    their right to receive principal and interest payments or, in
    the case of last out tranches of senior debt, liquidation
    proceeds from the borrower. As a result, senior subordinated
    notes are riskier than senior notes. Although such loans are
    sometimes secured by significant collateral (assets of the
    borrower), the lender is largely dependent on the
    borrowers cash flow for repayment. Additionally, lenders
    may receive warrants to acquire shares of stock in borrowers or
    other yield enhancements in connection with these loans. Senior
    subordinated notes include second lien loans and syndicated
    second lien loans.
    Junior Subordinated Loans.  We also seek to
    invest a small portion of our assets in junior subordinated
    notes, which include mezzanine notes. Holders of junior
    subordinated notes are subordinated to the rights of the holders
    of senior debt and senior subordinated debt in their rights to
    receive principal and interest payments from the borrower and
    the assets of the borrower. The risk profile of junior
    subordinated notes is high, which permits the junior
    subordinated lender to obtain higher interest rates and more
    equity and equity-like compensation.    Investment
    Concentrations
    September 30, 2010


September 30, 2009Cost


Fair Value


Cost


Fair ValueSenior Term Loans

$
200,041


$
172,596


$
240,172


$
212,290Senior Subordinated Term Loans


93,987



81,899



118,743



105,794Preferred Equity


444



387



2,028



Common Equity/Equivalents


3,744



2,227



3,450



2,885Total Investments

$
298,216


$
257,109


$
364,393


$
320,969  3




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September 30, 2010


September 30, 2009Percentage of





Percentage ofIndustry Classification

Fair Value


Total Investments


Fair Value


Total InvestmentsBroadcast (TV & Radio)

$
44,562



17.3
%

$
43,403



13.5
%Healthcare, Education & Childcare


41,098



16.0
%


58,054



18.1
%Printing & Publishing


37,705



14.7
%


37,864



11.8
%Electronics


25,080



9.8
%


27,899



8.7
%Mining, Steel, Iron & Non-Precious Metals


24,343



9.5
%


21,926



6.8
%Retail Stores


19,620



7.6
%


23,669



7.4
%Buildings & Real Estate


12,454



4.8
%


12,882



4.0
%Home & Office Furnishings


10,666



4.1
%


16,744



5.2
%Automobile


9,868



3.8
%


7,999



2.5
%Personal & Non-durable Consumer Products


9,230



3.6
%


8,714



2.7
%Machinery


8,719



3.4
%


9,202



2.9
%Chemicals, Plastics & Rubber


7,044



2.7
%


15,884



4.9
%Leisure, Amusement, Movies & Entertainment


3,994



1.6
%


5,091



1.6
%Diversified/Conglomerate Manufacturing


2,042



0.8
%


1,236



0.4
%Aerospace & Defense


400



0.2
%


1,857



0.6
%Farming & Agriculture


284



0.1
%


9,309



2.9
%Diversified Natural Resources, Precious Metals &
    Minerals










13,589



4.2
%Cargo Transport










5,427



1.7
%Textiles & Leather










220



0.1
%Total

$
257,109



100.0
%

$
320,969



100.0
%     September 30, 2010


September 30, 2009Percent of





Percentage ofGeographic Region

Fair Value


Total Investments


Fair Value


Total InvestmentsMidwest

$
142,357



55.4
%

$
172,263



53.7
%West


59,892



23.3
%


65,678



20.5
%Northeast


22,913



8.9
%


14,170



4.4
%Mid-Atlantic


14,482



5.6
%


28,437



8.8
%Southeast


11,038



4.3
%


34,708



10.8
%U.S. Territory


6,427



2.5
%


5,713



1.8
%$
257,109



100.0
%

$
320,969



100.0
%    4




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Our
    Investment Adviser and Administrator
    Form N-2
    Our
    Investment Strategy
     5




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Investment
    Process
  Overview
    of Investment and Approval Process
    Prospective
    Portfolio Company Characteristics
    
    Value-and-Income
    Orientation and Positive Cash Flow.  Our
    investment philosophy places a premium on fundamental analysis
    from an investors perspective and has a distinct
    value-and-income
    orientation. In seeking value, we focus on companies in which we
    can invest at relatively low multiples of earnings before
    interest, taxes, depreciation and amortization
    (EBITDA), and that have positive operating cash flow
    at the time of investment. In seeking income, we seek to invest
    in companies that generate relatively stable and high percentage
    of sales and cash flow to provide some assurance that they will
    be able to service their debt and pay any required distributions
    on preferred stock. Typically, we do not expect to invest in
    start-up
    companies or companies with speculative business plans.
    Experienced Management.  We generally require
    that our portfolio companies have experienced management teams.
    We also require the portfolio companies to have in place proper
    incentives to induce management to succeed and act in concert
    with our interests as investors, including having significant
    equity or other interests in the financial performance of their
    companies.
    Strong Competitive Position in an Industry.  We
    seek to invest in target companies that have developed strong
    market positions within their respective markets and that we
    believe are well-positioned to capitalize on growth
    opportunities. We seek companies that demonstrate significant
    competitive advantages versus their competitors, which we
    believe will help to protect their market positions and
    profitability.
    Exit Strategy.  We seek to invest in companies
    that we believe will provide a stable stream of earnings and
    cash flow that is sufficient to repay the loans we make to them
    and to reinvest in their respective businesses. We expect that
    such internally generated cash flow, which will allow our
    portfolio 6




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companies to pay interest on, and repay the principal of, our
    investments, will be a key means by which we exit from our
    investments over time. In addition, we also seek to invest in
    companies whose business models and expected future cash flows
    offer attractive possibilities for capital appreciation on any
    equity interests we may obtain or retain. These capital
    appreciation possibilities include strategic acquisitions by
    other industry participants or financial buyers, initial public
    offerings of common stock, or other capital market transactions.  
    Liquidation Value of Assets.  The prospective
    liquidation value of the assets, if any, collateralizing loans
    in which we invest is an important factor in our investment
    analysis. We emphasize both tangible assets, such as accounts
    receivable, inventory, equipment, and real estate and intangible
    assets, such as intellectual property, customer lists, networks,
    databases, although the relative weight we place on these assets
    will vary by company and industry.  Extensive
    Due Diligence
    
    a review of the prospective portfolio companys historical
    and projected financial information;
    visits to the prospective portfolio companys business
    site(s);
    interviews with the prospective portfolio companys
    management, employees, customers and vendors;
    review of all loan documents;
    background checks on the prospective portfolio companys
    management team; and
    research on the prospective portfolio companys products,
    services or particular industry.      Investment
    Structure
     7




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Risk
    Management
    
    making investments with an expected total return (including both
    interest and potential equity appreciation) that we believe
    compensates us for the credit risk of the investment;
    seeking collateral or superior positions in the portfolio
    companys capital structure where possible;
    incorporating put rights and call protection into the investment
    structure where possible; and
    negotiating covenants in connection with our investments that
    afford our portfolio companies as much flexibility as possible
    in managing their businesses, consistent with the preservation
    of our capital.  Temporary
    Investments
    Hedging
    Strategies
   8




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Competitive
    Advantages
    Management
    Expertise
    Increased
    Access to Investment Opportunities Developed Through Proprietary
    Research Capability and an Extensive Network of
    Contacts
   9




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Disciplined,
    Value and Income-Oriented Investment Philosophy with a Focus on
    Preservation of Capital
    
    focusing on companies with good market positions, established
    management teams and good cash flow;
    investing in businesses with experienced management teams;
    engaging in extensive due diligence from the perspective of a
    long-term investor;
    investing at low
    price-to-cash
    flow multiples; or
    adopting flexible transaction structures by drawing on the
    experience of the investment professionals of our Adviser and
    its affiliates.  Longer
    Investment Horizon with Attractive Publicly Traded
    Model
    Flexible
    Transaction Structuring
   10




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Leverage
    Ongoing
    Relationships with and Monitoring of Portfolio
    Companies
  Monitoring
      
    assessment of success in the portfolio companys overall
    adherence to its business plan and compliance with covenants;
    attendance at and participation in meetings of the portfolio
    companys board of directors;
    periodic contact, including formal update interviews with
    portfolio company management, and, if appropriate, the financial
    or strategic sponsor;
    comparison with other companies in the portfolio companys
    industry; and
    review of monthly and quarterly financial statements and
    financial projections for portfolio companies.  Managerial
    Assistance and Services
   11




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Valuation
    Process
    
    Our quarterly valuation process begins with each portfolio
    company or investment being initially assessed by our
    Advisers investment professionals responsible for the
    investment, using the Policy.
    Preliminary valuation conclusions are then discussed with our
    management, and documented, along with any independent opinions
    of value provided by Standard & Poors Securities
    Evaluations, Inc. (SPSE), for review by our Board of
    Directors.
    Our Board of Directors reviews this documentation and discusses
    the input of our Adviser, management, and the opinions of value
    of SPSE to arrive at a determination for the aggregate fair
    value of our portfolio of investments.    Investment
    Advisory and Management Agreements
    Base
    Management Fee
    
    Loan Servicing Fees   12




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
    Portfolio Company Fees    
    Senior Syndicated Loan Fee Waiver    Incentive
    Fee
      
    no incentive fee in any calendar quarter in which our
    pre-incentive fee net investment income does not exceed the
    hurdle rate (7% annualized);
    100% of our pre-incentive fee net investment income with respect
    to that portion of such pre-incentive fee net investment income,
    if any, that exceeds the hurdle rate but is less than 2.1875% in
    any calendar quarter (8.75% annualized); and
    20% of the amount of our pre-incentive fee net investment
    income, if any, that exceeds 2.1875% in any calendar quarter
    (8.75% annualized).  Quarterly Incentive Fee Based on Net Investment Income
  Pre-incentive
    fee net investment income
    (expressed as a percentage of the value of net assets)
  
  Percentage
    of pre-incentive fee net investment income
    allocated to income-related portion of incentive fee
   13




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Administration
    Agreement
    Material
    U.S. Federal Income Tax Considerations
  Regulated
    Investment Company Status
    
    Business Development Company Status.  At all
    times during the taxable year, we must maintain our status as a
    business development company.
    Income source requirements.  At least 90% of
    our gross income for each taxable year must be from dividends,
    interest, payments with respect to securities loans, gains from
    sales or other dispositions of securities or other income
    derived with respect to our business of investing in securities,
    and net income derived from an interest in a qualified publicly
    traded partnership.
    Asset diversification requirements.  As of the
    close of each quarter of our taxable year: (1) at least 50%
    of the value of our assets must consist of cash, cash items,
    U.S. government securities, the securities of other
    regulated investment companies and other securities to the
    extent that (a) we do not hold more than 10% of the
    outstanding voting securities of an issuer of such other
    securities and (b) such other securities of any one issuer
    do not represent more than 5% of our total assets, and
    (2) no more than 25% of the value of our total assets may
    be invested in the securities of one issuer (other than
    U.S. government securities or the securities of other
    regulated investment companies), or of two or more issuers that
    are controlled by us and are engaged in the same or similar or
    related trades or businesses or in the securities of one or more
    qualified publicly traded partnerships.  Failure to Qualify as a RIC.
 14




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10-year
  Qualification as a RIC.
    Taxation
    of Our U.S. Stockholders
  Distributions.
 15




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12-month
      Sale of Our Shares.
  Backup Withholding.
 16




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Regulation
    as a Business Development Company
      Qualifying
    Assets
    Asset
    Coverage
    Significant
    Managerial Assistance
   17




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Investment
    Policies
    
    We will at all times conduct our business so as to retain our
    status as a business development company. In order to retain
    that status, we must be operated for the purpose of investing in
    certain categories of qualifying assets. In addition, we may not
    acquire any assets (other than non-investment assets necessary
    and appropriate to our operations as a business development
    company or qualifying assets) if, after giving effect to such
    acquisition, the value of our qualifying assets is
    less than 70% of the value of our total assets. We anticipate
    that the securities we seek to acquire, as well as temporary
    investments, will generally be qualifying assets.
    We will at all times endeavor to conduct our business so as to
    retain our status as a RIC under the Code. In order to do so, we
    must meet income source, asset diversification and annual
    distribution requirements. We may issue senior securities, such
    as debt or preferred stock, to the extent permitted by the 1940
    Act for the purpose of making investments, to fund share
    repurchases, or for temporary emergency or other purposes.    Code of
    Ethics
  Regulation S-K
  Compliance
    Policies and Procedures
    Staffing
  25-30
 18




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Number ofIndividuals

Functional Area10

Executive Management33

Investment Management, Portfolio Management and Due Diligence9

Administration, Accounting, Compliance, Human Resources, Legal
    and Treasury   Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, 1-800-SEC-0330.
  Item 1A.
    Risk
    Factors  An investment in our securities involves a number of
    significant risks and other factors relating to our structure
    and investment objectives. As a result, we cannot assure you
    that we will achieve our investment objectives. You should
    consider carefully the following information before making an
    investment in our securities.
  Risks
    Related to the Economy
  The
    current state of the economy and the capital markets increases
    the possibility of adverse effects on our financial position and
    results of operations. Continued economic adversity could impair
    our portfolio companies financial positions and operating
    results and affect the industries in which we invest, which
    could, in turn, harm our operating results. Continued adversity
    in the capital markets could impact our ability to raise capital
    and reduce our volume of new investments.
     19




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We may
    experience fluctuations in our quarterly and annual results
    based on the impact of inflation in the United States.
    Risks
    Related to Our External Management
  We are
    dependent upon our key management personnel and the key
    management personnel of our Adviser, particularly David
    Gladstone, George Stelljes III and Terry Lee Brubaker, and
    on the continued operations of our Adviser, for our future
    success.
    Our
    incentive fee may induce our Adviser to make certain
    investments, including speculative investments.
    We may be
    obligated to pay our Adviser incentive compensation even if we
    incur a loss.
   20




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Our
    Advisers failure to identify and invest in securities that
    meet our investment criteria or perform its responsibilities
    under the Advisory Agreement may adversely affect our ability
    for future growth.
    There are
    significant potential conflicts of interest which could impact
    our investment returns.
      
    Our affiliate, Gladstone Commercial, may lease property to
    portfolio companies that we do not control under certain
    circumstances. We may pursue such transactions only if
    (i) the portfolio company is not controlled by us or any of
    our affiliates, (ii) the portfolio company satisfies the
    tenant underwriting criteria of Gladstone Commercial, and
    (iii) the transaction is approved by a majority of our
    independent directors and a majority of the independent
    directors of Gladstone Commercial. We expect that any such
    negotiations between Gladstone Commercial and our portfolio
    companies would result in lease terms consistent with the terms
    that the portfolio companies would be likely to receive were
    they not portfolio companies of ours.
    We may invest simultaneously with our affiliate Gladstone
    Investment in senior syndicated loans whereby neither we nor any
    affiliate has the ability to dictate the terms of the loans. 21




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
    Additionally, pursuant to an exemptive order granted by the
    Securities and Exchange Commission, our Adviser may sponsor a
    private investment fund to co-invest with us or Gladstone
    Investment in accordance with the terms and conditions of the
    order.      Our
    Adviser is not obligated to provide a waiver of the base
    management fee, which could negatively impact our earnings and
    our ability to maintain our current level of distributions to
    our stockholders.
    Our
    business model is dependent upon developing and sustaining
    strong referral relationships with investment bankers, business
    brokers and other intermediaries.
    Risks
    Related to Our External Financing
  Because
    of the limited amount of committed funding under our credit
    facility, we will have limited ability to fund new investments
    if we are unable to expand the facility.
   22




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Our
    business plan is dependent upon external financing, which is
    constrained by the limitations of the 1940 Act.
    
    Senior Securities.  We may issue debt
    securities, other evidences of indebtedness (including
    borrowings under our line of credit) and possibly senior common
    stock and preferred stock, up to the maximum amount permitted by
    the 1940 Act. The 1940 Act currently permits us, as a business
    development company, to issue debt securities, senior common
    stock and preferred stock, which we refer to collectively as
    senior securities, in amounts such that our asset coverage, as
    defined in the 1940 Act, is at least 200% after each issuance of
    senior securities. As a result of issuing senior securities, we
    will be exposed to the risks associated with leverage. Although
    borrowing money for investments increases the potential for
    gain, it also increases the risk of a loss. A decrease in the
    value of our investments will have a greater impact on the value
    of our common stock to the extent that we have borrowed money to
    make investments. There is a possibility that the costs of
    borrowing could exceed the income we receive on the investments
    we make with such borrowed funds. In addition, our ability to
    pay distributions or incur additional indebtedness would be
    restricted if asset coverage is not at least twice our
    indebtedness. If the value of our assets declines, we might be
    unable to satisfy that test. If this happens, we may be required
    to liquidate a portion of our loan portfolio and repay a portion
    of our indebtedness at a time when a sale, to the extent
    possible given the limited market for many of our investments,
    may be disadvantageous. Furthermore, any amounts that we use to
    service our indebtedness will not be available for distributions
    to our stockholders.
    Common Stock.  Because we are constrained in
    our ability to issue debt for the reasons given above, we are
    dependent on the issuance of equity as a financing source. If we
    raise additional funds by issuing more common stock or senior
    securities convertible into or exchangeable for our common
    stock, the percentage ownership of our stockholders at the time
    of the issuance would decrease and our common stock may
    experience dilution. In addition, any convertible or
    exchangeable securities that we issue in the future may have
    rights, preferences and privileges more favorable than those of
    our common stock. In addition, under the 1940 Act, we will
    generally not be able to issue additional shares of our common
    stock at a price below net asset value per share to purchasers,
    other than to our existing stockholders through a rights
    offering, without first obtaining the approval of our
    stockholders and our independent directors. If we were to sell
    shares of our common stock below our then current net asset
    value per share, such sales would result in an immediate
    dilution to the net asset value per share. This dilution would
    occur as a result of the sale of shares at a price below the
    then current net asset value per share of our common stock and a
    proportionately greater decrease in a stockholders
    interest in our earnings and assets and voting interest in us
    than the increase in our assets resulting from such issuance.
    For example, if we issue and sell an additional 10% of our
    common stock at a 5% discount from net asset value, a
    stockholder who does not participate in that offering for its
    proportionate interest will suffer net asset value dilution of
    up to 0.5% or $5 per $1,000 of net asset value. This imposes
    constraints on our ability to raise capital when our common
    stock is trading at below net asset value, as it has for the
    last year. 23




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A change
    in interest rates may adversely affect our
    profitability.
      In
    addition to regulatory limitations on our ability to raise
    capital, our Credit Facility contains various covenants which,
    if not complied with, could accelerate our repayment obligations
    under the facility, thereby materially and adversely affecting
    our liquidity, financial condition, results of operations and
    ability to pay distributions.
      Risks
    Related to Our Investments
  We
    operate in a highly competitive market for investment
    opportunities.
   24




---



##### 



Our
    investments in small and medium-sized portfolio companies are
    extremely risky and could cause you to lose all or a part of
    your investment.
    
    Small and medium-sized businesses are likely to have greater
    exposure to economic downturns than larger
    businesses.  Our portfolio companies may have
    fewer resources than larger businesses. Therefore, current
    uncertain economic conditions and any future economic downturns
    or recessions are more likely to have a material adverse effect
    on them. If one of our portfolio companies is adversely impacted
    by a recession, its ability to repay our loan or engage in a
    liquidity event, such as a sale, recapitalization or initial
    public offering, would be diminished. Moreover, in light of our
    current near-term strategy of preserving capital, our inability
    to make additional investments in our portfolio companies at a
    time when they need capital may increase their exposure to the
    risks of current uncertain economic conditions and future
    economic downturns.
    Small and medium-sized businesses may have limited financial
    resources and may not be able to repay the loans we make to
    them. Our strategy includes providing financing to portfolio
    companies that typically is not readily available to
    them.  While we believe that this provides an
    attractive opportunity for us to generate profits, this may make
    it difficult for the portfolio companies to repay their loans to
    us upon maturity. A borrowers ability to repay its loan
    may be adversely affected by numerous factors, including the
    failure to meet its business plan, a downturn in its industry,
    or negative economic conditions. A deterioration in a
    borrowers financial condition and prospects usually will
    be accompanied by a deterioration in the value of any collateral
    and a reduction in the likelihood of us realizing on any
    guarantees we may have obtained from the borrowers
    management. As of September 30, 2010, six investments were
    on non-accrual. While we are working with the portfolio
    companies to improve their profitability and cash flows, there
    can be no assurance that our efforts will prove successful.
    Although we will sometimes seek to be the senior, secured lender
    to a borrower, in most of our loans we expect to be subordinated
    to a senior lender, and our interest in any collateral would,
    accordingly, likely be subordinate to another lenders
    security interest.
    Small and medium-sized businesses typically have narrower
    product lines and smaller market shares than large
    businesses.  Because our target portfolio
    companies are smaller businesses, they will tend to be more
    vulnerable to competitors actions and market conditions,
    as well as general economic downturns. In addition, our
    portfolio companies may face intense competition, including
    competition from companies with greater financial resources,
    more extensive development, manufacturing, marketing, and other
    capabilities and a larger number of qualified managerial, and
    technical personnel.
    There is generally little or no publicly available
    information about these businesses.  Because we
    seek to invest in privately owned businesses, there is generally
    little or no publicly available operating and financial
    information about our potential portfolio companies. As a
    result, we rely on our officers, our Adviser, and its employees
    and consultants to perform due diligence investigations of these
    portfolio 25




---



##### 



companies, their operations, and their prospects. We may not
    learn all of the material information we need to know regarding
    these businesses through our investigations.  
    Small and medium-sized businesses generally have less
    predictable operating results.  We expect that our
    portfolio companies may have significant variations in their
    operating results, may from time to time be parties to
    litigation, may be engaged in rapidly changing businesses with
    products subject to a substantial risk of obsolescence, may
    require substantial additional capital to support their
    operations, to finance expansion or to maintain their
    competitive position, may otherwise have a weak financial
    position, or may be adversely affected by changes in the
    business cycle. Our portfolio companies may not meet net income,
    cash flow, and other coverage tests typically imposed by their
    senior lenders. A borrowers failure to satisfy financial
    or operating covenants imposed by senior lenders could lead to
    defaults and, potentially, foreclosure on its senior credit
    facility, which could additionally trigger cross-defaults in
    other agreements. If this were to occur, it is possible that the
    borrowers ability to repay our loan would be jeopardized.
    Small and medium-sized businesses are more likely to be
    dependent on one or two persons.  Typically, the
    success of a small or medium-sized business also depends on the
    management talents and efforts of one or two persons or a small
    group of persons. The death, disability, or resignation of one
    or more of these persons could have a material adverse impact on
    our borrower and, in turn, on us.
    Small and medium-sized businesses may have limited operating
    histories.  While we intend to target stable
    companies with proven track records, we may make loans to new
    companies that meet our other investment criteria. Portfolio
    companies with limited operating histories will be exposed to
    all of the operating risks that new businesses face and may be
    particularly susceptible to, among other risks, market
    downturns, competitive pressures and the departure of key
    executive officers.  We may
    not be able to replace lost income due to the reduction in the
    size of our portfolio and as a result, we may have to reduce our
    distributions to stockholders.
    Because a
    large percentage of the loans we make and equity securities we
    receive when we make loans are not publicly traded, there is
    uncertainty regarding the value of our privately held securities
    that could adversely affect our determination of our net asset
    value.
   26




---



##### 




    the nature and realizable value of any collateral;
    the portfolio companys earnings and cash flows and its
    ability to make payments on its obligations;
    the markets in which the portfolio company does business;
    the comparison to publicly traded companies; and
    discounted cash flow and other relevant factors.      The lack
    of liquidity of our privately held investments may adversely
    affect our business.
      Our
    financial results could be negatively affected if a significant
    portfolio investment fails to perform as expected.
   27




---



##### 



When we
    are a debt or minority equity investor in a portfolio company,
    which we expect will generally be the case, we may not be in a
    position to control the entity, and its management may make
    decisions that could decrease the value of our
    investment.
    Our
    portfolio companies may incur debt that ranks equally with, or
    senior to, our investments in such companies.
    Prepayments
    of our investments by our portfolio companies could adversely
    impact our results of operations and reduce our return on
    equity.
  and/or
  Higher
    taxation of our portfolio companies may impact our quarterly and
    annual operating results.
    Our
    portfolio is concentrated in a limited number of companies and
    industries, which subjects us to an increased risk of
    significant loss if any one of these companies does not repay us
    or if the industries experience downturns.
   28




---



##### 



Our
    investments are typically long term and will require several
    years to realize liquidation events.
    The
    disposition of our investments may result in contingent
    liabilities.
    There may
    be circumstances where our debt investments could be
    subordinated to claims of other creditors or we could be subject
    to lender liability claims.
    Portfolio
    company litigation could result in additional costs and the
    diversion of management time and resources.
    We may
    not realize gains from our equity investments and other yield
    enhancements.
   29




---



##### 



Any
    unrealized depreciation we experience on our investment
    portfolio may be an indication of future realized losses, which
    could reduce our income available for distribution.
    Risks
    Related to Our Regulation and Structure
  We will
    be subject to corporate-level tax if we are unable to satisfy
    Code requirements for RIC qualification.
     30




---



##### 



Changes
    in laws or regulations governing our operations, or changes in
    the interpretation thereof, and any failure by us to comply with
    laws or regulations governing our operations may adversely
    affect our business.
    We are
    subject to restrictions that may discourage a change of control.
    Certain provisions contained in our articles of incorporation
    and Maryland law may prohibit or restrict a change of control
    and adversely impact the price of our shares.
      
    any person who beneficially owns 10% or more of the voting power
    of our common stock (an interested stockholder);
    an affiliate of ours who at any time within the two-year period
    prior to the date in question was an interested
    stockholder; or
    an affiliate of an interested stockholder.     31




---



##### 



Risks
    Related to an Investment in Our Common Stock
  We may
    experience fluctuations in our quarterly and annual operating
    results.
    There is
    a risk that you may not receive distributions.
    Distributions
    by us have included and may in the future include a return of
    capital.
    The
    market price of our shares may fluctuate
    significantly.
      
    general economic trends and other external factors;
    price and volume fluctuations in the stock market from time to
    time, which are often unrelated to the operating performance of
    particular companies; 32




---



##### 




    significant volatility in the market price and trading volume of
    shares of RICs, business development companies or other
    companies in our sector, which is not necessarily related to the
    operating performance of these companies;
    changes in regulatory policies or tax guidelines, particularly
    with respect to RICs or business development companies;
    loss of business development company status;
    loss of RIC status;
    changes in our earnings or variations in our operating results;
    changes in the value of our portfolio of investments;
    any shortfall in our revenue or net income or any increase in
    losses from levels expected by securities analysts;
    departure of key personnel;
    operating performance of companies comparable to us;
    short-selling pressure with respect to our shares or business
    development companies generally;
    the announcement of proposed, or completed, offerings of our
    securities, including a rights offering; and
    loss of a major funding source.    The
    issuance of subscription rights to our existing stockholders may
    dilute the ownership and voting powers by existing stockholders
    in our common stock, dilute the net asset value of their shares
    and have a material adverse effect on the trading price of our
    common stock.
    Shares of
    closed-end investment companies frequently trade at a discount
    from net asset value.
   33




---



##### 



Stockholders
    may incur dilution if we sell shares of our common stock in one
    or more offerings at prices below the then current net asset
    value per share of our common stock.
      Other
    Risks
  We could
    face losses and potential liability if intrusion, viruses or
    similar disruptions to our technology jeopardize our
    confidential information, whether through breach of our network
    security or otherwise.
   34




---



##### 



Terrorist
    attacks, acts of war, or national disasters may affect any
    market for our common stock, impact the businesses in which we
    invest, and harm our business, operating results, and financial
    conditions.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Removed
    and Reserved PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    Quarter



Closing Sales Price

Premium (Discount)

Premium (Discount)

DeclaredEnded

NAV(1)

High

Low

of High to NAV(2)

of Low to NAV(2)

DividendsFY 2010

09/30/10

$
11.85


$
12.34


$
10.30



4
%


(13
)%

$
0.21006/30/10


11.81



13.94



10.09



18
%


(15
)%


0.21003/31/10


12.10



12.19



7.19



1
%


(41
)%


0.21012/31/09


11.92



9.49



7.50



(20
)%


(37
)%


0.210FY 2009

09/30/09


11.81



10.40



7.17



(12
)%


(39
)%


0.21006/30/09


11.86



7.80



5.49



(34
)%


(54
)%


0.21003/31/09


12.10



10.28



5.01



(15
)%


(59
)%


0.42012/31/08


12.04



15.38



5.50



28
%


(54
)%


0.420     (1)
    
    NAV per share is determined as of the last day in the relevant
    quarter and therefore may not reflect the NAV per share on the
    date of the high and low sales prices. The NAVs shown are based
    on outstanding shares at the end of each period. 35




---



##### 



(2)
    
    The premiums (discounts) set forth in these columns represent
    the high or low, as applicable, closing price per share for the
    relevant quarter minus the net asset value per share as of the
    end of such quarter, and therefore may not reflect the premium
    (discount) to net asset value per share on the date of the high
    and low closing prices.    Distributions
    Recent
    Sales of Unregistered Securities
    Item 6.
    Selected
    Financial Data    CONSOLIDATED
    SELECTED FINANCIAL AND OTHER DATA
  Year Ended September 30,2010


2009


2008


2007


2006(Dollar amounts in thousands, except per share and per unit
    data)Statement of Operations Data:Total Investment Income

$
35,539


$
42,618


$
45,725


$
36,687


$
26,900Total Expenses

$
17,780


$
21,587


$
19,172


$
14,426


$
7,447Net Investment Income

$
17,759


$
21,031


$
26,553


$
22,261


$
19,351Net Gain (Loss) on Investments, Derivative and Borrowings

$
(1,365
)

$
(17,248
)

$
(47,815
)

$
(7,309
)

$
5,079Net Increase (Decrease) in Net Assets Resulting from Operations

$
16,394


$
3,783


$
(21,262
)

$
14,952


$
24,430Per Share Data(1):Basic:

$
0.78


$
0.18


$
(1.08
)

$
1.13


$
2.15Diluted:

$
0.78


$
0.18


$
(1.08
)

$
1.13


$
2.10Cash Distributions Declared Per Share

$
0.840


$
1.260


$
1.680


$
1.680


$
1.635Statement of Assets and Liabilities Data:Total Assets

$
270,518


$
335,910


$
425,698


$
367,729


$
225,783Net Assets

$
249,246


$
249,076


$
271,748


$
220,959


$
172,570Net Asset Value Per Share

$
11.85


$
11.81


$
12.89


$
14.97


$
14.02Common Shares Outstanding


21,039,242



21,087,574



21,087,574



14,762,574



12,305,008 36




---



##### 



Year Ended September 30,2010


2009


2008


2007


2006(Dollar amounts in thousands, except per share and per unit
    data)Senior Securities Data:Borrowings under line of credit(2)

$
17,940


$
83,350


$
151,030


$
144,440


$
49,993Asset coverage ratio(3)(4)


1,419
%


396
%


279
%


252
%


443
%Asset coverage per unit(4)

$
14,187


$
3,963


$
2,792


$
2,524


$
4,435     (1)
    
    Per share data for net increase (decrease) in net assets
    resulting from operations is based on the weighted average
    common stock outstanding for both basic and diluted.(2)
    
    See Managements Discussion and Analysis of Financial
    Condition and Results of Operations for more information
    regarding our level of indebtedness.(3)
    
    As a business development company, we are generally required to
    maintain a ratio of 200% of total consolidated assets, less all
    liabilities and indebtedness not represented by senior
    securities, to total borrowings and guaranty commitments.(4)
    
    Asset coverage ratio is the ratio of the carrying value of our
    total consolidated assets, less all liabilities and indebtedness
    not represented by senior securities, to the aggregate amount of
    senior securities representing indebtedness. Asset coverage per
    unit is the asset coverage ratio expressed in terms of dollar
    amounts per one thousand dollars of indebtedness.  Year Ended September 30,2010


2009


2008


2007


2006Other Unaudited Data:Number of Portfolio Companies at Year End


39



48



63



56



32Principal Amount of Loan Originations

$
23,245


$
24,911


$
176,550


$
261,700


$
135,955Principal Amount of Loan Repayments and Investments Sold

$
85,634


$
96,693


$
70,482


$
121,818


$
124,010Weighted Average Yield on Investments(1):


9.88
%


9.82
%


10.00
%


11.22
%


12.08
%Total Return(2)


37.46
%


(30.94
)%


(13.90
)%


(4.40
)%


5.21
%     (1)
    
    Weighted average yield on investments equals interest income on
    investments divided by the annualized weighted average
    investment balance throughout the year.(2)
    
    Total return equals the increase (decrease) of the ending market
    value over the beginning market value plus monthly distributions
    divided by the monthly beginning market value.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (dollar amounts in thousands, unless otherwise
    indicated)  The following analysis of our financial condition and results
    of operations should be read in conjunction with our financial
    statements and the notes thereto contained elsewhere in this
    Form 10-K.
  OVERVIEW
  General
   37




---



##### 



Business
    Environment
       38




---



##### 



Syndicated
    Loan Valuations
    Investment
    Highlights
  Purchases:
  Repayments:
  Sales:
    Financing
    Highlights
  30-day
 39




---



##### 



30-day
      Investment
    Strategy
         40




---



##### 



Our
    Adviser and Administrator
   41




---



##### 



Investment
    Advisory and Management Agreement
            Administration
    Agreement
   42




---



##### 



RESULTS
    OF OPERATIONS
  COMPARISON
    OF THE FISCAL YEARS ENDED SEPTEMBER 30, 2010 AND
    2009
  A comparison of our operating results for the fiscal years
    ended September 30, 2010 and 2009 is below:
  For the Year Ended September 30,2010


2009


$ Change


% ChangeINVESTMENT INCOMEInterest incomeNon-Control/Non-Affiliate investments

$
29,938


$
40,747


$
(10,809
)


(26.5
)%Control investments


2,645



933



1,712



183.5
%Cash


1



11



(10
)


(90.9
)%Notes receivable from employees


437



468



(31
)


(6.6
)%Total interest income


33,021



42,159



(9,138
)


(21.7
)%Other income


2,518



459



2,059



448.6
%Total investment income


35,539



42,618



(7,079
)


(16.6
)%EXPENSESLoan servicing fee (Refer to Note 4)


3,412



5,620



(2,208
)


(39.3
)%Base management fee (Refer to Note 4)


2,673



2,005



668



33.3
%Incentive fee (Refer to Note 4)


1,823



3,326



(1,503
)


(45.2
)%Administration fee (Refer to Note 4)


807



872



(65
)


(7.5
)%Interest expense


4,390



7,949



(3,559
)


(44.8
)%Amortization of deferred financing fees


1,490



2,778



(1,288
)


(46.4
)%Professional fees


2,101



1,586



515



32.5
%Compensation expense (Refer to Note 4)


245







245



NMOther expenses


1,259



1,131



128



11.3
%Expenses before credit from Adviser


18,200



25,267



(7,067
)


(28.0
)%Credit to fees from Adviser (Refer to Note 4)


(420
)


(3,680
)


3,260



(88.6
)%Total expenses net of credit to credits to fees


17,780



21,587



(3,807
)


(17.6
)%NET INVESTMENT INCOME


17,759



21,031



(3,272
)


(15.6
)%REALIZED AND UNREALIZED LOSS ON:Net realized loss on investments


(2,893
)


(26,411
)


23,518



(89.0
)%Net unrealized appreciation on investments


2,317



9,513



(7,196
)


(75.6
)%Realized loss on settlement of derivative






(304
)


304



(100.0
)%Net unrealized appreciation on derivative






304



(304
)


(100.0
)%Net unrealized appreciation on borrowings under line of credit


(789
)


(350
)


(439
)


NMNet loss on investments, derivative and borrowings under line of
    credit


(1,365
)


(17,248
)


15,883



(92.1
)%NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$
16,394


$
3,783


$
12,611



333.4
%     NM = Not Meaningful
 43




---



##### 



Investment
    Income
                Year
    Ended September 30, 2010
  Investment


% ofCompany

Income


TotalSunshine Media

$
3,254



9.3
%Reliable Biopharma


3,003



8.6
%Westlake Hardware


2,940



8.4
%Midwest Metal (Clinton)#


2,127



6.1
%Winchester


1,589



4.5
%Subtotal

$
12,913



36.9
%Other companies


22,036



63.1
%Total income from investments*

$
34,949



100.0
%  44




---



##### 



Year
    Ended September 30, 2009
  Investment


% ofCompany

Income


TotalSunshine Media

$
3,352



8.0
%Reliable Biopharma


3,073



7.3
%Westlake Hardware


2,417



5.7
%Clinton Holdings


1,888



4.5
%VantaCore


1,696



4.0
%Subtotal

$
12,426



29.5
%Other companies


29,711



70.5
%Total income from investments*

$
42,137



100.0
%     #
    
    During the year ended September 30, 2010 Clinton Holdings
    was restructured as Midwest Metal.*
    
    Includes interest and other income from Non-Control and Control
    investments.  Operating
    Expenses
        Year EndedSeptember 30,


September 30,2010


2009Loan servicing fee

$
3,412


$
5,620Base management fee


2,673



2,005Gross management fee

$
6,085


$
7,625     Year EndedSeptember 30,


September 30,2010


2009Base management fee(1)

$
2,673


$
2,005Credit for fees received by Adviser from the portfolio companies


(213
)


(89
)Fee reduction for the voluntary, irrevocable and unconditional
    waiver of 2% fee on senior syndicated loans to 0.5%(2)


(42
)


(265
)Net base management fee

$
2,418


$
1,651     (1)
    
    Base management fee is net of loan servicing fees per the terms
    of the Advisory Agreement. 45




---



##### 



(2)
    
    The board of our Adviser voluntarily, irrevocably and
    unconditionally waived on a quarterly basis the annual 2% base
    management fee to 0.5% for senior syndicated loan participations
    for the years ended September 30, 2010 and 2009. Fees
    waived cannot be recouped by the Adviser in the future.    Year EndedSeptember 30,


September 30,2010


2009Incentive fee

$
1,823


$
3,326Credit from voluntary, irrevocable and unconditional waiver
    issued by Advisers board of directors


(165
)


(3,326
)Net incentive fee

$
1,658


$
             Realized
    Loss and Unrealized Appreciation (Depreciation) on
    Investments
  Realized
    Losses
   46




---



##### 



Unrealized
    Appreciation (Depreciation)
    Year EndedSeptember 30,


September 30,2010


2009Reversal of previously recorded unrealized depreciation upon
    realization of losses

$
6,411


$
24,531Appreciation from Control investments


1,098



1,564Depreciation from Non-Control/Non-Affiliate investments


(5,192
)


(16,582
)Net unrealized appreciation on investments

$
2,317


$
9,513     Realized
    Loss and Unrealized Appreciation on Derivative
    Net
    Unrealized Appreciation on Borrowings under Line of
    Credit
    Net
    Increase in Net Assets from Operations
   47




---



##### 



COMPARISON
    OF THE FISCAL YEARS ENDED SEPTEMBER 30, 2009 AND
    2008
  A comparison of our operating results for the fiscal years
    ended September 30, 2009 and 2008 is below:
  For the Year Ended September 30,2009


2008


$ Change


% ChangeINVESTMENT INCOMEInterest incomeNon-Control/Non-Affiliate investments

$
40,747


$
43,734


$
(2,987
)


(6.8
)%Control investments


933



64



869



1,357.8
%Cash


11



335



(324
)


(96.7
)%Notes receivable from employees


468



471



(3
)


(0.6
)%Total interest income


42,159



44,604



(2,445
)


(5.5
)%Other income


459



1,121



(662
)


(59.1
)%Total investment income


42,618



45,725



(3,107
)


(6.8
)%EXPENSESLoan servicing fee


5,620



6,117



(497
)


(8.1
)%Base management fee


2,005



2,212



(207
)


(9.4
)%Incentive fee


3,326



5,311



(1,985
)


(37.4
)%Administration fee


872



985



(113
)


(11.5
)%Interest expense


7,949



8,284



(335
)


(4.0
)%Amortization of deferred financing fees


2,778



1,534



1,244



81.1
%Professional fees


1,586



911



675



74.1
%Other expenses


1,131



1,215



(84
)


(6.9
)%Expenses before credit from Adviser


25,267



26,569



(1,302
)


(4.9
)%Credit to base management and incentive fees from Adviser


(3,680
)


(7,397
)


3,717



(50.3
)%Total expenses net of credit to base management and incentive
    fees


21,587



19,172



2,415



12.6
%NET INVESTMENT INCOME


21,031



26,553



(5,522
)


(20.8
)%REALIZED AND UNREALIZED GAIN (LOSS) ON:Net realized loss on investments


(26,411
)


(787
)


(25,624
)


3,255.9
%Net unrealized appreciation (depreciation) on investments


9,513



(47,023
)


56,536



(120.2
)%Realized (loss) gain on settlement of derivative


(304
)


7



(311
)


(4,442.9
)%Net unrealized appreciation (depreciation) on derivative


304



(12
)


316



(2,633.3
)%Net unrealized appreciation on borrowings under line of credit


(350
)






(350
)


NMNet loss on investments, derivative and borrowings under line of
    credit


(17,248
)


(47,815
)


30,567



(63.9
)%NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$
3,783


$
(21,262
)


25,045



(117.8
)%     NM = Not Meaningful
 48




---



##### 



Investment
    Income
          Year EndedSeptember 30,


September 30,2009


2008Interest earned on Gladstone Capital account(1)

$



$
50Interest earned on Business Loan custodial account(2)


10



199Interest earned on Gladstone Financial account(3)


1



86Total interest income from invested cash

$
11


$
335     (1)
    
    Interest earned on our Gladstone Capital account during the year
    ended September 30, 2008 resulted from proceeds received
    from the equity offerings completed during the fiscal year that
    were held in the account prior to being invested or used to pay
    down the line of credit.(2)
    
    Interest earned on our Business Loan custodial account during
    the year ended September 30, 2008 resulted from large cash
    amounts held in the account prior to disbursement. During this
    fiscal year, we had $140,817 of originations to new portfolio
    companies.(3)
    
    Interest earned on our Gladstone Financial account during the
    year ended September 30, 2008 resulted from the U.S.
    Treasury bill that was held with an original maturity of six
    months.     49




---



##### 



Year
    Ended September 30, 2009
  Interest


% ofCompany

Income


TotalSunshine Media

$
3,377



8.0
%Reliable Biopharma


3,076



7.3
%Westlake Hardware


2,451



5.8
%Clinton Holdings


1,899



4.5
%VantaCore


1,705



4.0
%Subtotal

$
12,508



29.6
%Other companies


29,629



70.4
%Total income from investments*

$
42,137



100.0
%   Year
    Ended September 30, 2008
  Interest


% ofCompany

Income


TotalSunshine Media

$
2,939



6.5
%Reliable Biopharma


2,871



6.4
%Westlake Hardware


2,860



6.4
%Clinton Holdings


1,903



4.2
%Winchester Electronics


1,401



3.1
%Subtotal

$
11,974



26.6
%Other companies


32,945



73.4
%Total income from investments*

$
44,919



100.0
%     *
    
    Includes interest and other income from Non-Control and Control
    investments.  Operating
    Expenses
       50




---



##### 



Year EndedSeptember 30,


September 30,2009


2008Base management fee(1)

$
2,005


$
2,212Credit for fees received by Adviser from the portfolio companies


(89
)


(1,678
)Fee reduction for the voluntary, irrevocable and unconditional
    waiver of 2% fee on senior syndicated loans to 0.5%(2)


(265
)


(408
)Net base management fee

$
1,651


$
126     (1)
    
    Base management fee is net of loan servicing fees per the terms
    of the Advisory Agreement.(2)
    
    The board of our Adviser voluntarily, irrevocably and
    unconditionally waived on a quarterly basis the annual 2% base
    management fee to 0.5% for senior syndicated loan participations
    for the years ended September 30, 2009 and 2008. Fees
    waived cannot be recouped by the Adviser in the future.    Year EndedSeptember 30,


September 30,2009


2008Incentive fee

$
3,326


$
5,311Credit from voluntary, irrevocable and unconditional waiver
    issued by Advisers board of directors


(3,326
)


(5,311
)Net incentive fee

$



$
         Realized
    Loss and Unrealized Appreciation (Depreciation) on
    Investments
  Realized
    Losses
   51




---



##### 



Unrealized
    Appreciation (Depreciation)
        Realized
    and Unrealized (Loss) Gain on Derivative
    Net
    Unrealized Appreciation on Borrowings under Line of
    Credit
   52




---



##### 



Net
    Increase (Decrease) in Net Assets from Operations
    LIQUIDITY
    AND CAPITAL RESOURCES
  Operating
    Activities
      Year Ended September 30,2010


2009Beginning investment portfolio at fair value

$
320,969


$
407,933New investments


23,245



24,911Principal repayments (including repayment of PIK)


(82,566
)


(47,490
)Proceeds from sales


(3,119
)


(49,203
)Increase in investment balance due to PIK


53



166Increase in investment balance due to rolled-over interest


529



1,455Loan impairment / contra-investment


(715
)


Net unrealized appreciation (depreciation)(1)


2,317



9,513Net realized loss


(2,893
)


(26,411
)Amortization of premiums and discounts


(711
)


95Ending investment portfolio at fair value

$
257,109


$
320,969     (1)
    
    Includes the reversal of unrealized depreciation due to
    investment exits for the years ended September 30, 2010 and
    2009 of $6,411 and $24,835, respectively. 53




---



##### 



New


Principal


Proceeds from


Net Gain (Loss)Quarter Ended

Investments(1)


Repayments(2)


Sales/Exits(3)


on DisposalSeptember 30, 2010

$
14,193


$
25,615


$



$
June 30, 2010


2,171



18,482







(2,865
)March 31, 2010


4,817



23,065



337



892December 31, 2009


2,064



15,404



2,782



(920
)Total fiscal year 2010

$
23,245


$
82,566


$
3,119


$
(2,893
)September 30, 2009

$
1,221


$
4,071


$
7,241


$
(12,086
)June 30, 2009


6,975



15,439



39,750



(10,594
)March 31, 2009


8,013



13,053







(2,000
)December 31, 2008


8,702



14,927



2,212



(1,731
)Total fiscal year 2009

$
24,911


$
47,490


$
49,203


$
(26,411
)September 30, 2008

$
39,048


$
21,381


$
1,299


$
(701
)June 30, 2008


43,678



40,755







(86
)March 31, 2008


20,483



3,000







December 31, 2007


73,341



4,047







Total fiscal year 2008

$
176,550


$
69,183


$
1,299


$
(787
)     (1)
    
    New Investments:  Disbursements toNew Investments


Existing Portfolio


TotalQuarter Ended

Companies


Investments


Companies


DisbursementsSeptember 30, 2010


1
(a)

$
10,000


$
4,193


$
14,193June 30, 2010


1
(b)


400



1,771



2,171March 31, 2010










4,817



4,817December 31, 2009


1
(c)


180



1,884



2,064Total fiscal year 2010


3


$
10,580


$
12,665


$
23,245September 30, 2009





$



$
1,221


$
1,221June 30, 2009










6,975



6,975March 31, 2009










8,013



8,013December 31, 2008










8,702



8,702Total fiscal year 2009





$



$
24,911


$
24,911September 30, 2008


3
(d)

$
33,375


$
5,673


$
39,048June 30, 2008


3
(e)


35,750



7,928



43,678March 31, 2008


1
(f)


13,700



6,783



20,483December 31, 2007


5
(g)


57,992



15,349



73,341Total fiscal year 2008


12


$
140,817


$
35,733


$
176,550     (a)
    
    Airvana Network Solutions(b)
    
    FedCap Partners(c)
    
    Northstar Broadband(d)
    
    AKQA, VantaCore and Tulsa Welding School 54




---



##### 



(e)
    
    Saunders, Legend and BAS Broadcasting(f)
    
    ACE Expediters(g)
    
    Interfilm, Reliable, Lindmark, GS Maritime and GFRC  (2)
    
    Principal Repayments (including repayment of PIK
    previously applied to principal balance):  Number of


Unscheduled


Scheduled


TotalCompanies


Principal


Principal


Principal


Net Gain onQuarter Ended

Fully Exited


Repayments(*)


Repayments


Repayments


Sale/Exit(#)September 30, 2010


2
(a)

$
14,135


$
11,480


$
25,615


$
June 30, 2010


1
(b)


13,590



4,892



18,482



March 31, 2010


4
(c)


18,902



4,163



23,065



1,055December 31, 2009


1
(d)


13,054



2,350



15,404



Total fiscal year 2010


8


$
59,681


$
22,885


$
82,566


$
1,055September 30, 2009





$



$
4,071


$
4,071


$
June 30, 2009


1
(e)


10,449



4,990



15,439



March 31, 2009



(f)


7,813



5,240



13,053



December 31, 2008


2
(g)


6,966



7,961



14,927



Total fiscal year 2009


3


$
25,228


$
22,262


$
47,490


$
September 30, 2008


2
(h)

$
12,797


$
8,584


$
21,381


$
June 30, 2008


3
(i)


28,134



12,621



40,755



March 31, 2008



(j)


500



2,500



3,000



December 31, 2007










4,047



4,047



Total fiscal year 2008


5


$
41,431


$
27,752


$
69,183


$
     (*)
    
    Includes principal payments due to excess cash flows, covenant
    violations, exits, refinancing, etc.(#)
    
    Net gain on principal repayments of $1,055 plus the net loss on
    sales/exits of $3,948 (per footnote 3 below) equals net loss of
    $2,893, which is included on the consolidated statement of
    operations for the year ended September 30, 2010.(a)
    
    Full payoff from Anitox and Doe and Ingalls(b)
    
    Full payoff from VantaCore.(c)
    
    Full payoff from ACE Expediters (which resulted in a gain on the
    warrants), ActivStyle, CCS and Visual Edge.(d)
    
    Full payoff from Tulsa Welding and partial payoff from BAS
    Broadcasting senior term debt (last out tranche).(e)
    
    Full payoff from Multi-Ag Media ($1,687), partial payoff from
    Saunders line of credit ($2,500) and refinancing from ActivStyle
    ($6,262).(f)
    
    Refinancing from ACE Expediters and Sunburst media.(g)
    
    Full payoff from Community Media and Country Road.(h)
    
    Full payoff from Express Courier International and Meteor
    Holding.(i)
    
    Full payoff from Macfadden Performing Arts, Reading Broadcasting
    and SCS ($25,074) and partial payoff from Anitox Senior Real
    Estate Term Debt ($3,060).(j)
    
    Partial payoff from Risk Metrics Senior Subordinated Term Debt. 55




---



##### 



(3)
    
    Loan Sales / Exits:  Number of





Position


Unamortized


Net (Loss)Companies


Proceeds


(Principal)


Loan


Gain onQuarter Ended

Fully Exited


Received


Exited


Costs(*)


Exit(#)September 30, 2010





$



$



$



$
June 30, 2010


1
(a)






(2,865
)






(2,865
)March 31, 2010


1
(b)


337



(500
)






(163
)December 31, 2009


2
(c)


2,782



(3,685
)


(17
)


(920
)Total fiscal year 2010


4


$
3,119


$
(7,050
)

$
(17
)

$
(3,948
)September 30, 2009


3
(d)

$
7,241


$
(19,321
)

$
(6
)

$
(12,086
)June 30, 2009


8
(e)


39,750



(52,295
)


1,951



(10,594
)March 31, 2009


1
(f)






(2,000
)






(2,000
)December 31, 2008



(g)


2,212



(3,950
)


7



(1,731
)Total fiscal year 2009


12


$
49,203


$
(77,566
)

$
1,952


$
(26,411
)September 30, 2008



(h)

$
1,299


$
(2,000
)

$



$
(701
)June 30, 2008














(86
)


(86
)March 31, 2008


















December 31, 2007


















Total fiscal year 2008





$
1,299


$
(2,000
)

$
(86
)

$
(787
)     (*)
    
    Includes balance of premiums, discounts and acquisition cost at
    time of exit.(#)
    
    Net gain on principal repayments of $1,055 (per footnote 2
    above) plus the net loss on sales/exits of $3,948 equals net
    loss of $2,893, which is included on the consolidated statement
    of operations for the year ended September 30, 2010.(a)
    
    Write-off of Western Directories line of credit, preferred stock
    and common stock.(b)
    
    Complete sale of Gold Toe senior subordinated syndicated loan.(c)
    
    Complete sale of Kinetek senior term syndicated loan and Wesco
    Holdings senior subordinated syndicated loan.(d)
    
    Full sale of CHG and John Henry syndicated loans, write-off of
    Badanco loan, and partial sale of Kinetek syndicated loan
    (senior subordinated debt).(e)
    
    Full sale of 8 loans (7 syndicated and 1 non-syndicated) and
    partial sale of CHG, GTM and Wesco syndicated loans (senior term
    debt).(f)
    
    Write-off of Greatwide syndicated loan (senior subordinated term
    debt).(g)
    
    Partial sale of Greatwide Logistics syndicated loan (senior term
    debt).(h)
    
    Partial sale of Greatwide Logistics syndicated loan (senior
    subordinated term debt). 56




---



##### 



Fiscal Year Ending September 30,

Amount2011

$
59,5752012


72,2012013


124,4962014


31,8402015


6,850Total Contractual Repayments

$
294,962Investments in equity securities


4,189Unamortized premiums, discounts and investment acquisition costs
    on debt securities


(935
)Total

$
298,216   Investing
    Activities
    Financing
    Activities
        Distributions
      Section 19(a)
    Disclosure
   57




---



##### 



Form 1099-DIV
    Month Ended

Ordinary Income

Return of Capital*

Total DividendJuly 31, 2010

$
0.068


$
0.002


$
0.070August 31, 2010


0.069



0.001



0.070September 30, 2010


0.069



0.001



0.070     Month Ended

Ordinary Income

Return of Capital*

Total DividendJuly 31, 3010

$
0.094


$
(0.024
)

$
0.070August 31, 2010


0.070



0.000



0.070September 30, 2010


0.046



0.024



0.070     *
    
    A positive number under Return of Capital indicates a return of
    capital was estimated whereas a negative number indicates that a
    surplus of income above the distribution was estimated.  Tax
    Information for the Year Ended September 30,
    2010
        Issuance
    of Equity
  Form N-2
   58




---



##### 



Revolving
    Credit Facility
  30-day 30-day
   59




---



##### 



Contractual
    Obligations and Off-Balance Sheet Arrangements
        As of September 30,2010

2009Unused lines of credit

$
9,304


$
14,055Guarantees


250



250     Payments Due by PeriodLess thanContractual Obligations(1)

1 Year

1-3 Years

4-5 Years

After 5 Years

TotalLine of credit(2)





$
17,940










$
17,940     (1)
    
    Excludes the unused commitments to extend credit to our
    portfolio companies of $9,304, as discussed above.(2)
    
    Borrowings under the Credit Facility are listed, at fair value,
    based on the contractual maturity due to the revolving nature of
    the facility.  Critical
    Accounting Policies
   60




---



##### 



Investment
    Valuation
    General Valuation Policy:
    
    Level 1  inputs to the valuation
    methodology are quoted prices (unadjusted) for identical assets
    or liabilities in active markets;
    Level 2  inputs to the valuation
    methodology include quoted prices for similar assets and
    liabilities in active markets, and inputs that are observable
    for the asset or liability, 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
    our own assumptions that market participants would use to price
    the asset or liability based upon the best available information.  Investments
        
    Publicly-traded securities;
    Securities for which a limited market exists; and
    Securities for which no market exists. 61




---



##### 



Valuation Methods:
  Publicly-traded securities:
  Securities for which a limited market
    exists:
      Securities for which no market exists:
  Portfolio investments comprised solely of debt
    securities:
   62




---



##### 



Portfolio investments in controlled companies
    comprised of a bundle of investments, which can include debt and
    equity securities: ASC 820-10, ASC 820-10
  
    the issuers ability to make payments;
    the earnings of the issuer;
    recent sales to third parties of similar securities; 63




---



##### 




    the comparison to publicly traded securities; and
    discounted cash flow or other pertinent factors.    Portfolio investments in non-controlled companies
    comprised of a bundle of investments, which can include debt and
    equity securities: ASC 820-10,
  Portfolio investments comprised of non-publicly
    traded non-control equity securities of other
    funds:
    Valuation Considerations:
  
    the nature and realizable value of the collateral;
    the portfolio companys earnings and cash flows and its
    ability to make payments on its obligations;
    the markets in which the portfolio company does business;
    the comparison to publicly traded companies; and
    DCF and other relevant factors.   64




---



##### 



Credit Information:
  Loan Grading and Risk Rating: Rule 2a-7
    Companys

First

SecondSystem

NRSRO

NRSRO

Description(a)>10

Baa2

BBB

Probability of Default (PD) during the next ten years is 4% and
    the Expected Loss (EL) is 1% or less10

Baa3

BBB-

PD is 5% and the EL is 1% to 2%9

Ba1

BB+

PD is 10% and the EL is 2% to 3%8

Ba2

BB

PD is 16% and the EL is 3% to 4%7

Ba3

BB-

PD is 17.8% and the EL is 4% to 5%6

B1

B+

PD is 22% and the EL is 5% to 6.5%5

B2

B

PD is 25% and the EL is 6.5% to 8%4

B3

B-

PD is 27% and the EL is 8% to 10%3

Caa1

CCC+

PD is 30% and the EL is 10% to 13.3%2

Caa2

CCC

PD is 35% and the EL is 13.3% to 16.7%1

Caa3

CC

PD is 65% and the EL is 16.7% to 20%<1

N/A

D

PD is 85% or there is a payment default and the EL is greater
    than 20%     (a)
    
    The default rates set forth are for a ten year term debt
    security. If a debt security is less than ten years, then the
    probability of default is adjusted to a lower percentage for the
    shorter period, which may move the security higher on our risk
    rating scale. 65




---



##### 



Sept. 30,

Sept. 30,Rating

2010

2009Highest


10.0



9.0Average


6.1



7.1Weighted Average


5.7



7.2Lowest


1.0



3.0     Sept. 30,

Sept. 30,Rating

2010

2009Highest


7.0



7.0Average


7.0



7.0Weighted Average


7.0



7.0Lowest


7.0



7.0     Sept. 30,

Sept. 30,Rating

2010

2009Highest

B+/B2

B-/B3Average

B+/B2

CCC+/Caa1Weighted Average

B+/B2

CCC+/Caa1Lowest

B2

D/C   Tax
    Status
  source-of-income,
   66




---



##### 



Revenue
    Recognition
  Interest
    Income Recognition
    Paid in
    Kind Interest and Original Issue Discount
    Recent
    Accounting Pronouncements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk (dollar amounts in
    thousands, unless otherwise indicated)     67




---



##### 



82
%

variable rates with a floor8
%

variable rates without a floor or ceiling10
%

fixed rate100
%

total       Net Increase(Decrease) in NetIncrease (Decrease) in

Increase (Decrease) in

Assets ResultingBasis Point Change

Interest Income

Interest Expense(a)

from OperationsUp 200 basis points

$
639


$
43


$
596Up 100 basis points


246







246Down 100 basis points


(128
)






(128
)Down 200 basis points


(201
)






(201
)     (a)
    
    As of September 30, 2010, the LIBOR was 0.26%; since the
    Credit Facility interest rate was subject to a 2.0% floor, there
    is no impact from a 100 basis point increase or decrease.     68




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  Index to
    Consolidated Financial Statements
  Report of Management on Internal Controls


70Report of Independent Registered Public
    Accounting Firm


71Consolidated Statements of Assets and Liabilities
    as of September 30, 2010 and September 30, 2009


72Consolidated Statements of Operations for the
    years ended September 30, 2010, September 30, 2009 and
    September 30, 2008


73Consolidated Statements of Changes in Net Assets
    for the years ended September 30, 2010, September 30,
    2009 and September 30, 2008


74Consolidated Statements of Cash Flows for the
    years ended September 30, 2010, September 30, 2009 and
    September 30, 2008


75Consolidated Schedules of Investments as of
    September 30, 2010 and September 30, 2009


76Notes to Consolidated Financial Statements


85  69




---



##### 



Report of
    Management on Internal Controls    Rule 13a-15(f)
         70




---



##### 



Report of
    Independent Registered Public Accounting Firm          
    71




---



##### 



GLADSTONE
    CAPITAL CORPORATION
    CONSOLIDATED STATEMENTS OF ASSETS AND
    LIABILITIES  September 30,


September 30,2010


2009(Dollar amounts in thousands,except per share data)ASSETSNon-Control/Non-Affiliate investments (Cost of $244,140 and
    $312,043, respectively)

$
223,737


$
286,997Control investments (Cost of $54,076 and $52,350, respectively)


33,372



33,972Total investments at fair value (Cost of $298,216 and $364,393,
    respectively)


257,109



320,969Cash


7,734



5,276Interest receivable  investments in debt securities


2,648



3,048Interest receivable  employees (Refer to Note 4)


104



85Due from custodian


255



3,059Due from Adviser (Refer to Note 4)






69Deferred financing fees


1,266



1,230Prepaid assets


799



341Receivables from portfolio companies, less allowance for
    uncollectible receivables of $322 and $0 at September 30,
    2010 and 2009, respectively


289



1,528Other assets


314



305TOTAL ASSETS

$
270,518


$
335,910LIABILITIESAccounts payable

$



$
67Interest payable


693



378Fee due to Administrator (Refer to Note 4)


267



216Fees due to Adviser (Refer to Note 4)


673



834Borrowings under line of credit (Cost of $16,800 and $83,000,
    respectively)


17,940



83,350Accrued expenses and deferred liabilities


1,426



1,800Funds held in escrow


273



189TOTAL LIABILITIES


21,272



86,834COMMITMENTS AND CONTINGENCIES






NET ASSETS

$
249,246


$
249,076ANALYSIS OF NET ASSETSCommon stock, $0.001 par value, 50,000,000 shares
    authorized and 21,039,242 and 21,087,574 shares issued and
    outstanding at September 30, 2010 and 2009, respectively

$
21


$
21Capital in excess of par value


326,935



328,203Notes receivable  employees (Refer to Note 4)


(7,103
)


(9,019
)Net unrealized depreciation on investments


(41,108
)


(43,425
)Net unrealized appreciation on borrowings under line of credit


(1,140
)


(350
)Overdistributed net investment income


(1,103
)


Accumulated Net Realized Losses


(27,256
)


(26,354
)TOTAL NET ASSETS

$
249,246


$
249,076NET ASSETS PER SHARE

$
11.85


$
11.81   
 72




---



##### 



GLADSTONE
    CAPITAL CORPORATION
    CONSOLIDATED STATEMENTS OF
    OPERATIONS  Year Ended September 30,2010


2009


2008(Dollar amounts in thousands,except per share data)INVESTMENT INCOMEInterest incomeNon-Control/Non-Affiliate investments

$
29,938


$
40,747


$
43,734Control investments


2,645



933



64Cash


1



11



335Notes receivable from employees (Refer to Note 4)


437



468



471Total interest income


33,021



42,159



44,604Other income


2,518



459



1,121Total investment income


35,539



42,618



45,725EXPENSESLoan servicing fee (Refer to Note 4)


3,412



5,620



6,117Base management fee (Refer to Note 4)


2,673



2,005



2,212Incentive fee (Refer to Note 4)


1,823



3,326



5,311Administration fee (Refer to Note 4)


807



872



985Interest expense


4,390



7,949



8,284Amortization of deferred financing fees


1,490



2,778



1,534Professional fees


2,101



1,586



911Compensation expense (Refer to Note 4)


245







Other expenses


1,259



1,131



1,215Expenses before credit from Adviser


18,200



25,267



26,569Credit to fees from Adviser (Refer to Note 4)


(420
)


(3,680
)


(7,397
)Total expenses net of credit to credits to fees


17,780



21,587



19,172NET INVESTMENT INCOME


17,759



21,031



26,553REALIZED AND UNREALIZED LOSS ON:Net realized loss on investments


(2,893
)


(26,411
)


(787
)Net unrealized appreciation (depreciation) on investments


2,317



9,513



(47,023
)Realized (loss) gain on settlement of derivative






(304
)


7Net unrealized appreciation (depreciation) on derivative






304



(12
)Net unrealized appreciation on borrowings under line of credit


(789
)


(350
)


Net loss on investments, derivative and borrowings under line of
    credit


(1,365
)


(17,248
)


(47,815
)NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$
16,394


$
3,783


$
(21,262
)NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
    PER COMMON SHAREBasic and Diluted

$
0.78


$
0.18


$
(1.08
)WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDINGBasic and Diluted


21,060,351



21,087,574



19,699,796   
 73




---



##### 



GLADSTONE
    CAPITAL CORPORATION



CONSOLIDATED
    STATEMENTS OF CHANGES IN NET ASSETS  Year Ended September 30,2010


2009


2008(Dollar amounts in thousands)Operations:Net investment income

$
17,759


$
21,031


$
26,553Net loss on sale of investments


(2,893
)


(26,411
)


(787
)Net unrealized appreciation (depreciation) on investments


2,317



9,513



(47,023
)Realized (loss) gain on settlement of derivative






(304
)


7Net unrealized appreciation (depreciation) on derivative






304



(12
)Net unrealized appreciation on borrowings under line of credit


(789
)


(350
)


Net increase (decrease) in net assets from operations


16,394



3,783



(21,262
)Distributions to stockholders from:Net investment income


(16,907
)


(20,795
)


(25,945
)Long Term Capital Gains






(27
)


(285
)Return of capital


(783
)


(5,748
)


(7,149
)Net decrease in net assets from distributions to stockholders


(17,690
)


(26,570
)


(33,379
)Capital share transactions:Issuance of common stock under shelf offering










106,226Shelf offering costs


(28
)


(41
)


(852
)Repayment of principal on employee notes


1,400



6



56Conversion of former employee stock option loans from recourse
    to non-recourse


(420
)






Reclassification of principal on employee note


514



150



Net increase in net assets from capital share transactions


1,466



115



105,430Total increase (decrease) in net assets


170



(22,672
)


50,789Net assets at beginning of year


249,076



271,748



220,959Net assets at end of year

$
249,246


$
249,076


$
271,748   
 74




---



##### 



GLADSTONE
    CAPITAL CORPORATION
    CONSOLIDATED STATEMENTS OF CASH
    FLOWS  Year Ended September 30,2010


2009


2008(Dollar amounts in thousands)CASH FLOWS FROM OPERATING ACTIVITIESNet increase (decrease) in net assets resulting from operations

$
16,393


$
3,783


$
(21,262
)Adjustments to reconcile net (decrease) increase in net assets
    resulting from operations to net cash used in operating
    activities:Purchase of investments


(23,245
)


(24,911
)


(176,550
)Principal repayments on investments


82,515



47,490



69,183Proceeds from sale of investments


3,119



49,203



1,299Repayment of paid in kind interest


51







Increase in investment balance due to paid in kind interest


(53
)


(166
)


(58
)Increase in investment balance due to rolled-over interest


(529
)


(1,455
)


Net change in premiums, discounts and amortization


711



(95
)


228Loan impairment / contra-investment


715







Net realized loss on investments


2,893



26,411



787Net unrealized (appreciation) depreciation on investments


(2,317
)


(9,513
)


47,023Realized loss on settlement of derivative






304



Net unrealized (appreciation) depreciation on derivative






(304
)


12Net unrealized appreciation on borrowings under line of credit


789



350



Amortization of deferred financing fees


1,490



2,778



1,534Change in compensation expense from non-recourse notes


245







Decrease (increase) in interest receivable


382



546



(1,232
)Decrease (increase) in funds due from custodian


2,804



1,485



(1,313
)(Increase) decrease in prepaid assets


(459
)


(35
)


31Decrease (increase) in due from Adviser


69



(69
)


Decrease in receivables from portfolio companies


1,239



(968
)


(480
)Increase in other assets


(3
)


123



(10
)(Decrease) increase in accounts payable


(67
)


59



2Increase (decrease) in interest payable


315



(268
)


59(Decrease) increase in accrued expenses and deferred liabilities


(529
)


472



537(Decrease) increase in fees due to Adviser (Refer to Note 4)


(161
)


377



(252
)Increase (decrease) in fee due to Administrator (Refer to
    Note 4)


51



(31
)


10Increase (decrease) in funds held in escrow


83



(45
)


234Net cash provided by (used in) operating activities


86,501



95,521



(80,218
)CASH FLOWS FROM INVESTING ACTIVITIESRedemption of U.S. Treasury Bill










2,484Net cash provided by investing activities










2,484CASH FLOWS FROM FINANCING ACTIVITIESNet proceeds from the issuance of common shares










106,226Shelf offering costs


(28
)


(41
)


(852
)Borrowings from the line of credit


24,900



48,800



200,618Repayments on the line of credit


(91,100
)


(116,830
)


(194,028
)Distributions paid


(17,690
)


(26,570
)


(33,379
)Receipt of principal on notes receivable  employees
    (Refer to Note 4)


1,400



6



56Deferred financing fees


(1,525
)


(2,103
)


(3,253
)Net cash (used in) provided by financing activities


(84,043
)


(96,738
)


75,388NET INCREASE (DECREASE) IN CASH


2,458



(1,217
)


(2,346
)CASH, BEGINNING OF YEAR


5,276



6,493



8,839CASH, END OF YEAR

$
7,734


$
5,276


$
6,493CASH PAID DURING PERIOD FOR INTEREST

$
4,075


$
8,278


$
8,226CASH PAID DURING PERIOD FOR TAXES

$



$



$
7NON-CASH FINANCING ACTIVITIESPortfolio company payoff proceeds held in escrow (included in
    other assets and other liabilities)

$
155


$



$
Reclassification of principal on employee note (Refer to
    Note 4)

$
515


$
150


$
Cancellation of employee note receivable (Refer to Note 4)

$
420


$



$
   
 75




---



##### 



GLADSTONE
    CAPITAL CORPORATION



CONSOLIDATED
    SCHEDULE OF INVESTMENTS

SEPTEMBER
    30, 2010  Company(1)

Industry

Investment(2)

Cost


Fair Value(Dollar amounts in thousands)NON-CONTROL/NON-AFFILIATE INVESTMENTSNon-syndicated Loans:Access Television Network, Inc.

Service-cable airtime (infomercials)

Senior Term Debt (14.0%, Due 12/2011)(5)

$
963


$
809Allison Publications, LLC

Service-publisher of consumer oriented magazines

Senior Term Debt (10.5%, Due 9/2012)(5)


9,094



8,543Senior Term Debt (13.0%, Due 12/2010)(5)


65



64BAS Broadcasting

Service-radio station operator

Senior Term Debt (11.5%, Due 7/2013)(5)


7,465



6,644Chinese Yellow Pages Company

Service-publisher of Chinese language directories

Line of Credit, $700 available (7.3%, Due 11/2010)(5)


450



428Senior Term Debt (7.3%, Due 11/2010)(5)


333



317CMI Acquisition, LLC

Service-recycling

Senior Subordinated Term Debt (10.3%, Due 11/2012)(5)


5,972



5,868FedCap Partners, LLC

Private equity fund

Class A Membership Units(8)


400



400Finn Corporation

Manufacturing-landscape equipment

Common Stock Warrants(7)(8)


37



284GFRC Holdings LLC

Manufacturing-glass-fiber reinforced concrete

Senior Term Debt (11.5%, Due 12/2012)(5)


6,111



6,004Senior Subordinated Term Debt (14.0%, Due 12/2012)(3)(5)


6,632



6,450Global Materials Technologies, Inc.

Manufacturing-steel wool products and metal fibers

Senior Term Debt (13.0%, Due 6/2012)(3)(5)


3,560



2,937Heartland Communications Group

Service-radio station operator

Line of Credit, $100 available (8.5%, Due 3/2013)






Line of Credit, $100 available (8.5%, Due 3/2013)






Senior Term Debt (8.5%, Due 3/2013)(5)


4,301



2,519Common Stock Warrants(7)(8)


66



Interfilm Holdings, Inc.

Service-slitter and distributor of plastic films

Senior Term Debt (12.3%, Due 10/2012)(5)


2,400



2,382International Junior Golf Training Acquisition Company

Service-golf training

Line of Credit, $1,500 available (9.0%, Due 5/2011)(5)






Senior Term Debt (8.5%, Due 5/2012)(5)


1,557



1,537Senior Term Debt (10.5%, Due 5/2012)(3)(5)


2,500



2,456KMBQ Corporation

Service-AM/FM radio broadcaster

Line of Credit, $200 available (non-accrual, Due 7/2010)(5)(10)


161



16Senior Term Debt (non-accrual, Due 7/2010)(5)(10)


1,921



192Legend Communications of Wyoming LLC

Service-operator of radio stations

Senior Term Debt (12.0%, Due 6/2013)(5)


9,880



6,422Newhall Holdings, Inc.

Service-distributor of personal care products and supplements

Line of Credit, $1,350 available (5.0%, Due 12/2012)(5)


1,350



1,269Senior Term Debt (5)(5.0%, Due 12/2012)(5)


3,870



3,638Senior Term Debt (5.0%, Due 12/2012)(3)(5)


4,648



4,323Preferred Equity(7)(8)






Common Stock(7)(8)






Northern Contours, Inc.

Manufacturing-veneer and laminate components

Senior Subordinated Term Debt (13.0%, Due 9/2012)(5)


6,301



5,765 76




---



##### 



GLADSTONE
    CAPITAL CORPORATION
  CONSOLIDATED
    SCHEDULE OF
    INVESTMENTS  (Continued)
  Company(1)

Industry

Investment(2)

Cost


Fair Value(Dollar amounts in thousands)Northstar Broadband, LLC

Service-cable TV franchise owner

Senior Term Debt (0.7%, Due 12/2012)(5)

$
117


$
102Pinnacle Treatment Centers, Inc.

Service-Addiction treatment centers

Line of Credit, $500 available (12.0%, Due 10/2010)(5)(12)


150



150Senior Term Debt (10.5%, Due 12/2011)(5)


1,950



1,945Senior Term Debt (10.5%, Due 12/2011)(3)(5)


7,500



7,481Precision Acquisition Group Holdings, Inc.

Manufacturing-consumable components for the aluminum industry

Equipment Note (13.0%, Due 10/2010)(5)(13)


1,000



950Senior Term Debt (13.0%, Due 10/2010)(5)(13)


4,125



3,919Senior Term Debt (13.0%, Due 10/2010)(3)(5)(13)


4,053



3,850PROFITSystems Acquisition Co.

Service-design and develop ERP software

Line of Credit, $350 available (4.5%, Due 7/2011)






Senior Term Debt (8.5%, Due 7/2011)(5)


1,000



940Senior Term Debt (10.5%, Due 7/2011)(3)(5)


2,900



2,697RCS Management Holding Co.

Service-healthcare supplies

Senior Term Debt (9.5%, Due 1/2011)(3)(5)


1,937



1,918Senior Term Debt (11.5%, Due 1/2011)(4)(5)


3,060



3,029Reliable Biopharmaceutical Holdings, Inc.

Manufacturing-pharmaceutical and biochemical intermediates

Line of Credit, $5,000 available (9.0%, Due 10/2010)(5)(14)


1,200



1,188Mortgage Note (9.5%, Due 10/2014)(5)


7,255



7,201Senior Term Debt (9.0%, Due 10/2012)(5)


1,080



1,069Senior Term Debt (11.0%, Due 10/2012)(3)(5)


11,693



11,386Senior Subordinated Term Debt (12.0%, Due 10/2013)(5)


6,000



5,730Common Stock Warrants(7)(8)


209



Saunders & Associates

Manufacturing-equipment provider for frequency control devices

Senior Term Debt (9.8%, Due 5/2013)(5)


8,947



8,935SCI Cable, Inc.

Service-cable, internet, voice provider

Senior Term Debt (non-accrual, Due 10/2012)(5)(10)


450



140Senior Term Debt (non-accrual, Due 10/2012)(5)(10)


2,931



352Sunburst Media  Louisiana, LLC

Service-radio station operator

Senior Term Debt (10.5%, Due 6/2011)(5)


6,391



5,100Sunshine Media Holdings

Service-publisher regional B2B trade magazines

Line of credit, $2,000 available (10.5%, Due 2/2011)(5)


1,599



1,499Senior Term Debt (10.5%, Due 5/2012)(5)


16,948



15,889Senior Term Debt (13.3%, Due 5/2012)(3)(5)


10,700



9,898Thibaut Acquisition Co.

Service-design and distribute wall covering

Line of Credit, $1,000 available (9.0%, Due 1/2011)(5)


1,000



970Senior Term Debt (8.5%, Due 1/2011)(5)


1,075



1,043Senior Term Debt (12.0%, Due 1/2011)(3)(5)


3,000



2,888 77




---



##### 



GLADSTONE
    CAPITAL CORPORATION
  CONSOLIDATED
    SCHEDULE OF
    INVESTMENTS  (Continued)
  Company(1)

Industry

Investment(2)

Cost


Fair Value(Dollar amounts in thousands)Viapack, Inc.

Manufacturing-polyethylene film

Senior Real Estate Term Debt (10.0%, Due 3/2011)(5)

$
675


$
672Senior Term Debt (13.0%, Due 3/2011)(3)(5)


4,005



3,990Westlake Hardware, Inc.

Retail-hardware and variety

Senior Subordinated Term Debt (12.3%, Due 1/2014)(5)


12,000



11,820Senior Subordinated Term Debt (13.5%, Due 1/2014)(5)


8,000



7,800Winchester Electronics

Manufacturing-high bandwidth connectors and cables

Senior Term Debt (5.3%, Due 5/2012)(5)


1,250



1,244Senior Term Debt (6.0%, Due 5/2013)(5)


1,686



1,661Senior Subordinated Term Debt (14.0%, Due 6/2013)(5)


9,875



9,603Subtotal  Non-syndicated loans






225,798



206,326Syndicated Loans:Airvana Network Solutions, Inc

Service-telecommunications

Senior Term Debt (11.0%, Due 8/2014)(6)

$
8,858


$
8,942Puerto Rico Cable Acquisition Company, Inc.

Service-telecommunications

Senior Subordinated Term Debt (7.9%, Due 1/2012)(6)


7,159



6,427WP Evenflo Group Holdings Inc.

Manufacturing-infant and juvenile products

Senior Term Debt (8.0%, Due 2/2013)(6)


1,881



1,655Senior Preferred Equity(7)(8)


333



379Junior Preferred Equity(7)(8)


111



8Common Stock(7)(8)






Subtotal  Syndicated loans






18,342



17,411Total Non-Control/Non-Affiliate Investments





$
244,140


$
223,737CONTROL INVESTMENTSBERTL, Inc.

Service-web-based evaluator of digital imaging products

Line of Credit, $1,621 available (non-accrual, Due
    10/2010)(7)(10)(11)

$
1,319


$
Common Stock(7)(8)


424



Defiance Integrated Technologies, Inc.

Manufacturing-trucking parts

Senior Term Debt (11.0%, Due 4/2013)(3)(5)


8,325



8,325Common Stock(7)(8)


1



1,543Guaranty ($250)Lindmark Acquisition, LLC

Service-advertising

Senior Subordinated Term Debt (non-accrual, Due
    10/2012)(5)(9)(10)


10,000



5,000Senior Subordinated Term Debt (non-accrual, Due
    12/2010)(5)(9)(10)


2,000



1,000Senior Subordinated Term Debt (non-accrual, Due Upon
    Demand)(5)(9)(10)


1,794



897Common Stock(7)(8)


1



LocalTel, LLC

Service-yellow pages publishing

Line of credit, $1,850 available (non-accrual, Due
    12/2010)(7)(10)


1,698



1,063Senior Term Debt (non-accrual, Due 2/2012)(7)(10)


325



Line of Credit, $3,000 available (non-accrual, Due 6/2011)(7)(10)


1,170



Senior Term Debt (non-accrual, Due 6/2011)(7)(10)


2,688



Senior Term Debt (non-accrual, Due 6/2011)(3)(7)(10)


2,750



Common Stock Warrants(7)(8)






 78




---



##### 



GLADSTONE
    CAPITAL CORPORATION
  CONSOLIDATED
    SCHEDULE OF
    INVESTMENTS  (Continued)
  Company(1)

Industry

Investment(2)

Cost


Fair Value(Dollar amounts in thousands)Midwest Metal Distribution, Inc.

Distribution-aluminum sheets and stainless steel

Senior Subordinated Term Debt (12.0%, Due 7/2013)(5)

$
18,254


$
15,539Common Stock(7)(8)


138



U.S. Healthcare Communications, Inc.

Service-magazine publisher/ operator

Line of credit, $400 available (non-accrual, Due 12/2010)(7)(10)


269



5Line of credit, $450 available (non-accrual, Due 12/2010)(7)(10)


450



Common Stock(7)(8)


2,470



Total Control Investments





$
54,076


$
33,372Total Investments(15)





$
298,216


$
257,109     (1)
    
    Certain of the listed securities are issued by affiliate(s) of
    the indicated portfolio company.(2)
    
    Percentage represents interest rates in effect at
    September 30, 2010 and due date represents the contractual
    maturity date.(3)
    
    Last Out Tranche (LOT) of senior debt, meaning if
    the portfolio company is liquidated, the holder of the LOT is
    paid after the senior debt.(4)
    
    LOT of senior debt, meaning if the portfolio company is
    liquidated, the holder of the LOT is paid after the senior debt,
    however, the debt is also junior to another LOT.(5)
    
    Fair value was based on opinions of value submitted by
    Standard & Poors Securities Evaluations, Inc.(6)
    
    Security valued based on the indicative bid price on or near
    September 30, 2010, offered by the respective syndication
    agents trading desk or secondary desk.(7)
    
    Fair value was based on the total enterprise value of the
    portfolio company using a liquidity waterfall approach. The
    Company also considered discounted cash flow methodologies.(8)
    
    Security is non-income producing.(9)
    
    Lindmarks loan agreement was amended in March 2009 such
    that any unpaid current interest accrues at a conditional
    interest rate. The conditional interest is not recorded until
    paid (see Note 2, Summary of Significant Accounting
    Policies  Interest Income Recognition).(10)
    
    BERTL, KMBQ, Lindmark, LocalTel, SCI Cable and U.S. Healthcare
    are currently past due on interest payments and are on
    non-accrual.(11)
    
    BERTLs interest includes paid in kind interest. Please
    refer to Note 2 Summary of Significant Accounting
    Policies. Subsequent to September 30, 2010,
    BERTLs line of credit maturity date was extended to
    October 2011.(12)
    
    Subsequent to September 30, 2010, Pinnacles line of
    credit maturity date was extended to January 2011.(13)
    
    Subsequent to September 30, 2010, Precisions
    equipment note and senior term loan maturity dates were extended
    to November 2010.(14)
    
    Subsequent to September 30, 2010, Reliables line of
    credit limit was reduced to $3,500, the interest rate floor was
    increased to 10.0% and the maturity date was extended to January
    2011.(15)
    
    Aggregate gross unrealized depreciation for federal income tax
    purposes is $1,919; aggregate gross unrealized appreciation for
    federal income tax purposes is $43,023. Net unrealized
    depreciation is $41,104 based on a tax cost of $298,186.  
 79




---



##### 



GLADSTONE
    CAPITAL CORPORATION
  CONSOLIDATED
    SCHEDULE OF INVESTMENTS
 SEPTEMBER
    30, 2009
  Company(1)

Industry

Investment(2)

Cost


Fair Value(Dollar amounts in thousands)NON-CONTROL/NON-AFFILIATE INVESTMENTSNon-syndicated Loans:Access Television Network, Inc.

Service-cable airtime (infomercials)

Senior Term Debt (14.5%, Due 12/2009)(5)(9)

$
963


$
868ACE Expediters, Inc

Service-over-the-ground logistics

Senior Term Debt (13.5%, Due 9/2014)(5)(13)


5,106



4,864Common Stock Warrants(8)


200



564ActivStyle Acquisition Co.

Service-medical products distribution

Senior Term Debt (13.0%, Due 4/2014)(3)(5)


4,000



3,940Allison Publications, LLC

Service-publisher of consumer oriented magazines

Senior Term Debt (10.0%, Due 9/2012)(5)


9,709



8,746Senior Term Debt (13.0%, Due 12/2010)(5)


260



246Anitox Acquisition Company

Manufacturing-preservatives for animal feed

Line of Credit, $3,000 available (4.5%, Due 1/2010)(5)


1,700



1,681Senior Term Debt (8.5%, Due 1/2012)(5)


2,877



2,823Senior Term Debt (10.5%, Due 1/2012)(3)(5)


3,688



3,582BAS Broadcasting

Service-radio station operator

Senior Term Debt (11.5%, Due 7/2013)(5)


7,300



5,840Senior Term Debt (12.0%, Due 7/2009)(3)(5)(12)


950



475CCS, LLC

Service-cable TV franchise owner

Senior Term Debt (non-accrual, Due 8/2008)(5)(10)(12)


631



126Chinese Yellow Pages Company

Service-publisher of Chinese language directories

Line of Credit, $700 available (7.3%, Due 9/2010)(5)


450



427Senior Term Debt (7.3%, Due 9/2010)(5)


518



488CMI Acquisition, LLC

Service-recycling

Senior Subordinated Term Debt (10.3%, Due 11/2012)(5)


6,233



5,890Doe & Ingalls Management LLC

Distributor-specialty chemicals

Senior Term Debt (6.8%, Due 11/2010)(5)


2,300



2,266Senior Term Debt (7.8%, Due 11/2010)(3)(5)


4,365



4,267Finn Corporation

Manufacturing-landscape equipment

Common Stock Warrants(8)


37



1,223GFRC Holdings LLC

Manufacturing-glass-fiber reinforced concrete

Line of Credit, $2,000 available (4.5%, Due 12/2010)






Senior Term Debt (9.0%, Due 12/2012)(5)


6,599



6,450Senior Subordinated Term Debt (11.5%, Due 12/2012)(3)(5)


6,665



6,432Global Materials Technologies, Inc.

Manufacturing-steel wool products and metal fibers

Senior Term Debt (13.0%, Due 6/2010)(3)(5)


4,410



3,528Heartland Communications Group

Service-radio station operator

Senior Term Debt (10.0%, Due 5/2011)(5)


4,567



2,726Interfilm Holdings, Inc.

Service-slitter and distributor of plastic films

Senior Term Debt (12.3%, Due 10/2012)(5)


4,950



4,715International Junior Golf Training Acquisition Company

Service-golf training

Line of Credit, $1,500 available (9.0%, Due 5/2010)(5)


700



690Senior Term Debt (8.5%, Due 5/2012)(5)


2,120



2,036Senior Term Debt (10.5%, Due 5/2012)(3)(5)


2,500



2,366 80




---



##### 



GLADSTONE
    CAPITAL CORPORATION
  CONSOLIDATED
    SCHEDULE OF
    INVESTMENTS  (Continued)
  Company(1)

Industry

Investment(2)

Cost


Fair Value(Dollar amounts in thousands)KMBQ Corporation

Service-AM/FM radio broadcaster

Line of Credit, $200 available (11.0%, Due 3/2010)(5)

$
153


$
69Senior Term Debt (11.0%, Due 3/2010)(5)


1,785



801Legend Communications of Wyoming LLC

Service-operator of radio stations

Line of Credit, $500 available (12.0%, Due 6/2011)(5)


497



450Senior Term Debt (12.0%, Due 6/2013)(5)


9,373



8,482Newhall Holdings, Inc.

Service-distributor of personal care products and supplements

Line of Credit, $3,000 available (11.3%, Due 5/2010)(5)


1,000



945Senior Term Debt (5)(11.3%, Due 5/2012)(5)


3,870



3,657Senior Term Debt (14.3%, Due 5/2012)(3)(5)


4,410



4,112Northern Contours, Inc.

Manufacturing-veneer and laminate components

Senior Subordinated Term Debt (10.0%, Due 5/2010)(5)


6,562



5,414Pinnacle Treatment Centers, Inc.

Service-Addiction treatment centers

Line of Credit, $500 available (4.5%, Due 12/2009)






Senior Term Debt (10.5%, Due 12/2011)(5)


2,750



2,633Senior Term Debt (10.5%, Due 12/2011)(3)(5)


7,500



7,059Precision Acquisition Group Holdings, Inc.

Manufacturing-consumable components for the aluminum industry

Equipment Note (8.5%, Due 10/2011)(5)


1,000



988Senior Term Debt (8.5%, Due 10/2010)(5)


4,250



4,192Senior Term Debt (11.5%, Due 10/2010)(3)(5)


4,074



4,023PROFITSystems Acquisition Co.

Service-design and develop ERP software

Line of Credit, $350 available (4.5%, Due 7/2010)






Senior Term Debt (8.5%, Due 7/2011)(5)


1,600



1,468Senior Term Debt (10.5%, Due 7/2011)(3)(5)


2,900



2,632RCS Management Holding Co.

Service-healthcare supplies

Senior Term Debt (8.5%, Due 1/2011)(3)(5)


2,437



2,383Senior Term Debt (10.5%, Due 1/2011)(4)(5)


3,060



2,949Reliable Biopharmaceutical Holdings, Inc.

Manufacturing-pharmaceutical and biochemical intermediates

Line of Credit, $5,000 available (9.0%, Due 10/2010)(5)


800



788Mortgage Note (9.5%, Due 10/2014)(5)


7,335



7,261Senior Term Debt (9.0%, Due 10/2012)(5)


1,530



1,507Senior Term Debt (11.0%, Due 10/2012)(3)(5)


11,813



11,518Senior Subordinated Term Debt (12.0%, Due 10/2013)(5)


6,000



5,640Common Stock Warrants(8)


209



282Saunders & Associates

Manufacturing-equipment provider for frequency control devices

Senior Term Debt (9.8%, Due 5/2013)(5)


10,780



10,618SCI Cable, Inc.

Service-cable, internet, voice provider

Senior Term Debt (9.3%, Due 10/2008)(5)(12)


2,881



576Sunburst Media  Louisiana, LLC

Service-radio station operator

Senior Term Debt (10.5%, Due 6/2011)(5)


6,411



5,817 81




---



##### 



GLADSTONE
    CAPITAL CORPORATION
  CONSOLIDATED
    SCHEDULE OF
    INVESTMENTS  (Continued)
  Company(1)

Industry

Investment(2)

Cost


Fair Value(Dollar amounts in thousands)Sunshine Media Holdings

Service-publisher regional B2B trade magazines

Senior Term Debt (11.0%, Due 5/2012)(5)

$
16,948


$
15,973Senior Term Debt (13.5%, Due 5/2012)(3)(5)


10,700



9,978Thibaut Acquisition Co.

Service-design and disbribute wall covering

Line of Credit, $1,000 available (9.0%, Due 1/2011)(5)


1,000



933Senior Term Debt (8.5%, Due 1/2011)(5)


1,487



1,387Senior Term Debt (12.0%, Due 1/2011)(3)(5)


3,000



2,745Tulsa Welding School

Service-private welding school

Line of credit, $750 available (9.5%, Due 9/2011)






Senior Term Debt (9.5%, Due 9/2013)(5)


4,144



4,144Senior Term Debt (12.8%, Due 9/2013)(5)


7,960



7,950VantaCore

Service-acquisition of aggregate quarries

Senior Subordinated Term Debt (12.0%, Due 8/2013)(5)


13,726



13,589Viapack, Inc.

Manufacturing-polyethylene film

Senior Real Estate Term Debt (10.0%, Due 3/2011)(5)


775



743Senior Term Debt (13.0%, Due 3/2011)(3)(5)


4,061



3,893Visual Edge Technology, Inc.

Service-office equipment distribution

Line of credit, $3,000 available (10.8%, Due 9/2011)(5)


2,981



2,340Senior Subordinated Term Debt (15.5%, Due 8/2011)(5)


5,000



3,925Westlake Hardware, Inc.

Retail-hardware and variety

Senior Subordinated Term Debt (9.0%, Due 1/2011)(5)


15,000



14,269Senior Subordinated Term Debt (10.3%, Due 1/2011)(5)


10,000



9,400Winchester Electronics

Manufacturing-high bandwidth connectors and cables

Senior Term Debt (5.3%, Due 5/2013)(5)


1,147



1,136Senior Term Debt (5.7%, Due 5/2013)(5)


1,690



1,642Senior Subordinated Term Debt (14.0%, Due 6/2013)(5)


9,925



9,478Subtotal  Non-syndicated loans






298,322



277,048Syndicated Loans:GTM Holdings, Inc.

Manufacturing-socks

Senior Subordinated Term Debt (11.8%, Due 4/2014)(6)

$
500


$
220Kinetek Acquisition Corp.

Manufacturing-custom  engineered motors & controls

Senior Term Debt (3.6%, Due 11/2013)(7)


1,438



925Puerto Rico Cable Acquisition Company, Inc.

Service-telecommunications

Senior Subordinated Term Debt (7.8%, Due 1/2012)(6)


7,174



5,713Wesco Holdings, Inc.

Service-aerospace parts and  distribution

Senior Subordinated Term Debt (6.0%, Due 3/2014)(7)


2,264



1,856WP Evenflo Group Holdings Inc.

Manufacturing-infant and juvenile products

Senior Term Debt (8.0%, Due 2/2013)(6)


1,901



1,235Senior Preferred Equity(8)


333



Junior Preferred Equity(8)


111



Common Stock(8)






Subtotal  Syndicated loans






13,721



9,949Total Non-Control/Non-Affiliate Investments





$
312,043


$
286,997CONTROL INVESTMENTSBERTL, Inc.

Service-web-based evaluator of digital imaging products

Line of Credit, $842 available (non-accrual, Due
    10/2009)(10)(13)(15)

$
930


$
Common Stock(8)(15)


424



 82




---



##### 



GLADSTONE
    CAPITAL CORPORATION
  CONSOLIDATED
    SCHEDULE OF
    INVESTMENTS  (Continued)
  Company(1)

Industry

Investment(2)

Cost


Fair Value(Dollar amounts in thousands)Clinton Holdings, LLC

Distribution-aluminum sheets and stainless steel

Senior Subordinated Term Debt (12.0%, Due 1/2013)(5)(14)

$
15,500


$
12,013Escrow Funding Note (12.0%, Due 1/2013)(5)(14)


640



496Common Stock Warrants(8)(15)


109



Defiance Integrated Technologies, Inc.

Manufacturing-trucking parts

Senior Term Debt (11.0%, Due 4/2010)(3)(11)


6,005



6,005Senior Term Debt (11.0%, Due 4/2010)(3)(11)


1,178



1,178Common Stock(8)(15)


1



816Guaranty ($250)Lindmark Acquisition, LLC

Service-advertising

Senior Subordinated Term Debt (11.3%, Due 10/2012)(5)(16)


10,000



8,675Senior Subordinated Term Debt (11.3%, Due 10/2012)(5)(16)


2,000



1,735Senior Subordinated Term Debt (13.0%, Due Upon Demand)(5)(16)


1,553



1,049Common Stock(8)(15)


1



LocalTel, LLC

Service-yellow pages publishing

Line of credit, $1,250 available (10.0%, Due 7/2010)(15)


1,168



1,168Senior Term Debt (12.5%, Due 2/2012)(15)


325



325Line of Credit, $3,000 available (non-accrual, Due
    6/2010)(10)(15)


1,170



421Senior Term Debt (non-accrual, Due 6/2011)(10)(15)


2,688



Senior Term Debt (non-accrual, Due 6/2011)(3)(10)(15)


2,750



Common Stock Warrants(8)(15)






U.S. Healthcare Communications, Inc.

Service-magazine publisher/ operator

Line of credit, $200 available (non-accrual, Due 3/2010)(10)(15)


169



91Line of credit, $450 available (non-accrual, Due 3/2010)(10)(15)


450



Common Stock(8)(15)


2,470



Western Directories, Inc.

Service-directory publisher

Line of credit, $1,250 available (non-accrual, Due
    12/2009)(10)(15)


1,234



Preferred Stock(8)(15)


1,584



Common Stock(8)(15)


1



Total Control Investments





$
52,350


$
33,972Total Investments(17)





$
364,393


$
320,969     (1)
    
    Certain of the listed securities are issued by affiliate(s) of
    the indicated portfolio company.(2)
    
    Percentage represents interest rates in effect at
    September 30, 2009 and due date represents the contractual
    maturity date.(3)
    
    Last Out Tranche (LOT) of senior debt, meaning if
    the portfolio company is liquidated, the holder of the LOT is
    paid after the senior debt.(4)
    
    LOT of senior debt, meaning if the portfolio company is
    liquidated, the holder of the LOT is paid after the senior debt,
    however, the debt is also junior to another LOT. 83




---



##### 



GLADSTONE
    CAPITAL CORPORATION
  CONSOLIDATED
    SCHEDULE OF
    INVESTMENTS  (Continued)
   (5)
    
    Fair value was based on opinions of value submitted by
    Standard & Poors Securities Evaluations, Inc.(6)
    
    Security valued based on the indicative bid price on or near
    September 30, 2009, offered by the respective syndication
    agents trading desk or secondary desk.(7)
    
    Security valued based on the transaction sale price subsequent
    to September 30, 2009 (see Note 12).(8)
    
    Security is non-income producing.(9)
    
    Access Television includes a success fee with a fair value of $1.(10)
    
    BERTL, CCS, U.S. Healthcare, Western Directories and a portion
    of LocalTel are currently past due on interest payments and are
    on non-accrual. BERTLs loan matured in October 2009 and
    the Company is actively working to recover amounts due under
    this loan. However, there is no assurance that there will be any
    recovery of amounts past due.(11)
    
    Fair value of security estimated to be equal to cost due to
    recent recapitalization.(12)
    
    BAS Broadcastings loan matured in July 2009, CCS
    loan matured in August 2008 and SCI Cables loan matured in
    October 2008. The Company is actively working to recover amounts
    due under these loans, however, there is no assurance that there
    will be any recovery of amounts past due.(13)
    
    ACE Expediters interest and BERTLs interest include
    paid in kind (PIK) interest. Please refer to
    Note 2 Summary of Significant Accounting
    Policies.(14)
    
    Subsequent to September 30, 2009, Clinton Aluminums
    senior subordinated term debt and escrow funding note were
    combined into one term note, with an interest rate of 12.0% and
    maturity date of January 2013. In addition, a term loan was
    entered into for $320, with an interest rate of 12.0% and
    maturity date of January 2013.(15)
    
    Fair value was based on the total enterprise value of the
    portfolio company using a liquidity waterfall approach.(16)
    
    Lindmarks loan agreement was amended in March 2009 such
    that any unpaid current interest accrues at a conditional
    interest rate. The conditional interest is not recorded until
    paid (see Note 2, Summary of Significant Accounting
    Policies  Interest Income Recognition).(17)
    
    Aggregate gross unrealized depreciation for federal income tax
    purposes is $45,863; aggregate gross unrealized appreciation for
    federal income tax purposes is $2,439. Net unrealized
    depreciation is $43,424 based on a tax cost of $364,393.  
 84




---



##### 



GLADSTONE
    CAPITAL CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    SEPTEMBER 30, 2010
    (DOLLAR AMOUNTS IN THOUSANDS,
    EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)  Note 1.
    Organization              Note 2.
    Summary
    of Significant Accounting Policies  Basis of
    Presentation
    Reclassifications
   85




---



##### 



Consolidation
  Regulation S-X
  Use of
    Estimates
    Out-of-Period
    Adjustment
    Cash and
    Cash Equivalents
    Concentration
    of Credit Risk
    Classification
    of Investments
    
    Control Investments  Investments in which the
    Company owns more than 25% of the voting securities or has
    greater than 50% representation on the board of directors;
    Affiliate Investments  Investments in which
    the Company owns between 5% and 25% of the voting securities and
    has less than 50% representation on the board of
    directors; and
    Non-Control/Non-Affiliate Investments 
    Investments in which the Company owns less than 5% of the voting
    securities.  Investment
    Valuation Policy
   86




---



##### 



Publicly-traded securities:
  Securities for which a limited market
    exists:
      Securities for which no market exists:
 87




---



##### 



Portfolio investments comprised solely of debt
    securities:
  Portfolio investments in controlled companies
    comprised of a bundle of investments, which can include debt and
    equity securities:
  
    the issuers ability to make payments;
    the earnings of the issuer;
    recent sales to third parties of similar securities;
    the comparison to publicly traded securities; and
    DCF or other pertinent factors.    Portfolio investments in non-controlled companies
    comprised of a bundle of investments, which can include debt and
    equity securities:
 88




---



##### 



Portfolio investments comprised of non-publicly
    traded non-control equity securities of other
    funds:
      Interest
    Income Recognition
    Paid in
    Kind Interest and Original Issue Discount
     89




---



##### 



Realized
    Gain or Loss and Unrealized Appreciation or Depreciation of
    Portfolio Investments
    Costs
    Related to Shelf Registration Statements
  ASC 946-20,
  Deferred
    Finance Costs
    Receivables
    from Portfolio Companies
    Related
    Party Costs
    Federal
    Income Taxes
  source-of-income,
 90




---



##### 



740-10,
  Dividends
    and Distributions
    Recent
    Accounting Pronouncements
  No. 2009-05, No. 2009-05 No. 2009-05 No. 2009-05
  No. 2009-12, No. 2009-12
  No. 2009-17,
 91




---



##### 



No. 2009-17 No. 2009-17
  No. 2010-06, No. 2010-06
  No. 2010-09,
  2010-10,
  Note 3.
    Investments    
    Level 1  inputs to the valuation
    methodology are quoted prices (unadjusted) for identical assets
    or liabilities in active markets;
    Level 2  inputs to the valuation
    methodology include quoted prices for similar assets and
    liabilities in active markets, and inputs that are observable
    for the asset or liability, 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 the Companys own assumptions that market
    participants would use to price the asset or liability based
    upon the best available information.   92




---



##### 



As of September 30, 2010Total Fair ValueReported inConsolidated Statements ofLevel 1


Level 2


Level 3


Assets and LiabilitiesNon-Control/Non-Affiliate InvestmentsSenior Term Loans

$



$



$
163,203


$
163,203Senior Subordinated Term Loans










59,463



59,463Preferred Equity










387



387Common Equity/Equivalents










684



684Total investments at fair value

$



$



$
223,737


$
223,737Control InvestmentsSenior Term Loans

$



$



$
9,393


$
9,393Senior Subordinated Term Loans










22,436



22,436Common Equity/Equivalents










1,543



1,543Total investments at fair value

$



$



$
33,372


$
33,372Total investments at fair value

$



$



$
257,109


$
257,109   As of September 30, 2009Total Fair ValueReported inConsolidated Statements ofLevel 1


Level 2


Level 3


Assets and LiabilitiesNon-Control/Non-Affiliate InvestmentsSenior Term Loans

$



$



$
203,102


$
203,102Senior Subordinated Term Loans










81,826



81,826Common Equity/Equivalents










2,069



2,069Total investments at fair value

$



$



$
286,997


$
286,997Control InvestmentsSenior Term Loans

$



$



$
9,189


$
9,189Senior Subordinated Term Loans










23,967



23,967Common Equity/Equivalents










816



816Total investments at fair value

$



$



$
33,972


$
33,972Total investments at fair value

$



$



$
320,969


$
320,969   Changes
    in Level 3 Fair Value Measurements
   93




---



##### 



Fair
    value measurements using unobservable data inputs
    (Level 3)
  Fiscal
    Year 2010:
  Non-Control/Non-Affiliate


ControlTwelve Months Ended September 30, 2010:

Investments


Investments


TotalFair value as of September 30, 2009

$
286,997


$
33,972


$
320,969Total gains or lossesRealized losses(a)


(28
)


(2,865
)


(2,893
)Reversal of prior period depreciation on realization(b)


3,546



2,865



6,411Unrealized appreciation (depreciation)(b)


1,098



(5,192
)


(4,094
)New investments, repayments and settlements(c)Issuances/New investments


17,774



4,627



22,401Settlements/Repayments


(82,531
)


(35
)


(82,566
)Sales


(3,119
)






(3,119
)Transfers into/out of Level 3










Fair value as of September 30, 2010

$
223,737


$
33,372


$
257,109   Senior


Senior





CommonTerm


Subordinated


Preferred


Equity/Twelve Months Ended September 30, 2010:

Loans


Term Loans


Equity


Equivalents


TotalFair value as of September 30, 2009

$
212,290


$
105,794


$



$
2,885


$
320,969Total gains or lossesRealized (losses) gains(a)


(2,104
)


(571
)


(1,584
)


1,366



(2,893
)Reversal of prior period depreciation (appreciation) on
    realization(b)


3,453



1,620



1,584



(246
)


6,411Unrealized (depreciation) appreciation(b)


(3,016
)


(758
)


386



(706
)


(4,094
)New investments, repayments, and settlements, net(c)Issuances/New investments


19,551



2,355







495



22,401Settlements/Repayments


(56,653
)


(24,347
)






(1,566
)


(82,566
)Sales


(925
)


(2,194
)










(3,119
)Transfers into/out of Level 3


















Fair value as of September 30, 2010

$
172,596


$
81,899


$
386


$
2,228


$
257,109  94




---



##### 



Fiscal
    Year 2009:
  Non-Control/Non-Affiliate


ControlTwelve Months Ended September 30, 2009:

Investments


Investments


Derivative


TotalFair value as of September 30, 2008

$
407,153


$
780


$



$
407,933Total gains or lossesRealized losses(a)


(26,411
)






(304
)


(26,715
)Reversal of prior period depreciation on realization(b)


24,531







304



24,835Unrealized (depreciation) appreciation(b)


(16,582
)


1,564







(15,018
)New investments, repayments, and settlements, net(c)


(101,694
)


31,628







(70,066
)Transfers in (out) of Level 3














Fair value as of September 30, 2009

$
286,997


$
33,972


$



$
320,969   Senior


Senior





CommonTerm


Subordinated


Preferred


Equity/Twelve Months Ended September 30, 2009:

Loans


Term Loans


Equity


Equivalents


Derivative


TotalFair value as of September 30, 2008

$
265,297


$
140,676


$



$
1,960


$



$
407,933Total gains or lossesRealized losses(a)


(5,595
)


(20,816
)










(304
)


(26,715
)Reversal of prior period depreciation on realization(b)


4,773



19,758











304



24,835Unrealized (depreciation) appreciation(b)


(43
)


(15,455
)


(444
)


924







(15,018
)New investments, repayments, and settlements, net(c)


(52,142
)


(18,369
)


444



1







(70,066
)Transfers into/out of Level 3






















Fair value as of September 30, 2009

$
212,290


$
105,794


$



$
2,885


$



$
320,969     (a)
    
    Included in net realized loss on investments on the accompanying
    consolidated statements of operations for the years ended
    September 30, 2010 and 2009.(b)
    
    Included in unrealized appreciation (depreciation) on
    investments on the accompanying consolidated statements of
    operations for the years ended September 30, 2010 and 2009.(c)
    
    Includes increases in the cost basis of investments resulting
    from new portfolio investments, the amortization of discounts,
    premiums and closing fees as well as decreases in the cost basis
    of investments resulting from principal repayments or sales.  Non-Control/Non-Affiliate
    Investments
    Control
    and Affiliate Investments
   95




---



##### 




    BERTL:  The Company originally purchased a past
    due debt instrument in MCA Communications, LLC, and the Company
    accepted a deed in lieu of foreclosure in satisfaction of
    BERTLs obligations under the debt instrument in September
    2007. BERTL is a web-based evaluator of digital imaging products.
    Defiance:  In July 2009, the Company acquired
    from the previous owner certain assets of Defiance Acquisition
    Corp., consisting of tangible and intangible personal property.
    The Company acquired these assets through a newly formed
    subsidiary, Defiance, and intends to continue the business under
    its control. Defiance is a manufacturer of trucking parts.
    Lindmark:  In March 2009, the Company acquired
    from the previous owner certain assets of Lindmark Outdoor
    Advertising, LLC, consisting of all tangible and intangible
    personal property. The Company acquired these assets through a
    newly formed subsidiary, Lindmark Holdings Corp., and intends to
    continue the business under its control. Lindmark is a billboard
    advertising company.
    LocalTel:  In July 2008, the Company acquired
    from the previous owner certain assets of LocalTel, Inc.,
    consisting of all tangible and intangible personal property. The
    Company acquired these assets through a newly formed subsidiary,
    LYP Holdings Corp., and intends to continue the business under
    its control. LocalTel is a publisher of community yellow page
    directories.
    Midwest Metal:  In September 2009, the Company
    took control of certain entities of Clinton Holdings, LLC by
    exercising contractual rights under the investment documents. In
    July 2010, the Company acquired stock ownership through a newly
    formed subsidiary, Gladstone Metal, LLC, and intends to continue
    the business under its control. Midwest Metal is a metal service
    center for aluminum and stainless steel products.
    U.S. Healthcare:  The Company offered at
    public sale certain assets of U.S. Healthcare
    Communications, LLC in January 2008, consisting generally of all
    fixtures of tangible and intangible personal property. The
    Company acquired these assets in the sale through a newly formed
    subsidiary, U.S. Healthcare, and intends to continue the
    business under its control. U.S. Healthcare is a trade
    magazine operator.  Investment
    Concentrations
    September 30, 2010


September 30, 2009Cost


Fair Value


Cost


Fair ValueSenior Term Loans

$
200,041


$
172,596


$
240,172


$
212,290Senior Subordinated Term Loans


93,987



81,899



118,743



105,794Preferred Equity


444



387



2,028



Common Equity/Equivalents


3,744



2,227



3,450



2,885Total Investments

$
298,216


$
257,109


$
364,393


$
320,969  96




---



##### 



September 30, 2010


September 30, 2009Percentage of





Percentage ofIndustry Classification

Fair Value


Total Investments


Fair Value


Total InvestmentsBroadcast (TV & Radio)

$
44,562



17.3
%

$
43,403



13.5
%Healthcare, Education & Childcare


41,098



16.0
%


58,054



18.1
%Printing & Publishing


37,705



14.7
%


37,864



11.8
%Electronics


25,080



9.8
%


27,899



8.7
%Mining, Steel, Iron & Non-Precious Metals


24,343



9.5
%


21,926



6.8
%Retail Stores


19,620



7.6
%


23,669



7.4
%Buildings & Real Estate


12,454



4.8
%


12,882



4.0
%Home & Office Furnishings


10,666



4.1
%


16,744



5.2
%Automobile


9,868



3.8
%


7,999



2.5
%Personal & Non-durable Consumer Products


9,230



3.6
%


8,714



2.7
%Machinery


8,719



3.4
%


9,202



2.9
%Chemicals, Plastics & Rubber


7,044



2.7
%


15,884



4.9
%Leisure, Amusement, Movies & Entertainment


3,994



1.6
%


5,091



1.6
%Diversified/Conglomerate Manufacturing


2,042



0.8
%


1,236



0.4
%Aerospace & Defense


400



0.2
%


1,857



0.6
%Farming & Agriculture


284



0.1
%


9,309



2.9
%Diversified Natural Resources, Precious Metals &
    Minerals










13,589



4.2
%Cargo Transport










5,427



1.7
%Textiles & Leather










220



0.1
%Total

$
257,109



100.0
%

$
320,969



100.0
%     September 30, 2010


September 30, 2009Percent of





Percentage ofGeographic Region

Fair Value


Total Investments


Fair Value


Total InvestmentsMidwest

$
142,357



55.4
%

$
172,263



53.7
%West


59,892



23.3
%


65,678



20.5
%Northeast


22,913



8.9
%


14,170



4.4
%Mid-Atlantic


14,482



5.6
%


28,437



8.8
%Southeast


11,038



4.3
%


34,708



10.8
%U.S. Territory


6,427



2.5
%


5,713



1.8
%$
257,109



100.0
%

$
320,969



100.0
%    97




---



##### 



Investment
    Principal Repayment
    Fiscal Year Ending September 30,

Amount2011

$
59,5752012


72,2012013


124,4962014


31,8402015


6,850Total Contractual Repayments

$
294,962Investments in equity securities


4,189Unamortized premiums, discounts and investment acquisition costs
    on debt securities


(935
)Total

$
298,216   Note 4.
    Related
    Party Transactions  Loans to
    Employees
       98




---



##### 



Compensation
    Expense
    Investment
    Advisory and Management Agreement
      Year Ended September 30,2010


2009


2008Average total assets subject to base management fee(1)

$
304,250


$
381,250


$
416,450Multiplied by pro-rated annual base management fee of 2.0%


2.0
%


2.0
%


2.0
%Unadjusted base management fee


6,085



7,625



8,329Reduction for loan servicing fees(2)


3,412



5,620



6,117Base management fee(2)


2,673



2,005



2,212Credit for fees received by Adviser from the portfolio companies


(213
)


(89
)


(1,678
)Fee reduction for the voluntary, irrevocable waiver of 2% fee on
    senior syndicated loans to 0.5% per annum(3)


(42
)


(265
)


(408
)Net base management fee

$
2,418


$
1,651


$
126Incentive fee

$
1,823


$
3,326


$
5,311Credit from voluntary, irrevocable waiver issued by
    Advisers board of directors


(165
)


(3,326
)


(5,311
)Net incentive fee

$
1,658


$



$
Credit for fees received by Adviser from the portfolio companies

$
(213
)

$
(89
)

$
(1,678
)Fee reduction for the voluntary, irrevocable waiver of 2% fee on
    senior syndicated loans to 0.5% per annum


(42
)


(265
)


(408
)Incentive fee credit


(165
)


(3,326
)


(5,311
)Credit to base management and incentive fees from Adviser

$
(420
)

$
(3,680
)

$
(7,397
)     (1)
    
    Average total assets subject to the base management fee is
    defined as total assets, including investments made with
    proceeds of borrowings, less any uninvested cash and cash
    equivalents resulting from borrowings, valued at the end of the
    four most recently completed quarters and appropriately adjusted
    for any share issuances or repurchases during the current year.(2)
    
    Reflected as a line item on the consolidated statement of
    operations located elsewhere in this report. 99




---



##### 



(3)
    
    The board of our Adviser voluntarily, irrevocably and
    unconditionally waived on a quarterly basis the annual 2.0% base
    management fee to 0.5% for senior syndicated loan participations
    for the years ended September 30, 2010, 2009 and 2008. Fees
    waived cannot be recouped by the Adviser in the future.  Base
    Management Fee
    
    Loan Servicing Fees    
    Senior Syndicated Loan Fee Waiver    
    Portfolio Company Fees    Incentive
    Fee
    
    no incentive fee in any calendar quarter in which its
    pre-incentive fee net investment income does not exceed the
    hurdle rate (7% annualized);
    100% of 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% in
    any calendar quarter (8.75% annualized); and
    20% of the amount of pre-incentive fee net investment income, if
    any, that exceeds 2.1875% in any calendar quarter (8.75%
    annualized).   100




---



##### 



Administration
    Agreement
    Related
    Party Fees Due
    As of September 30,


As of September 30,2010


2009Unpaid base management fee to Adviser

$
319


$
617Unpaid incentive fee to Adviser


158



Unpaid loan servicing fees to Adviser


196



217Total Fees due to Adviser


673



834Unpaid administration fee due to Administrator


267



216Total related party fees due

$
940


$
1,050     Note 5.
    Line of
    Credit  30-day
 101




---



##### 



Fair
    Value
    Borrowings under Line of CreditTotal Fair ValueReported inConsolidated Statement ofLevel 1

Level 2

Level 3

Assets and LiabilitiesSeptember 30, 2010

$



$



$
17,940


$
17,940September 30, 2009

$



$



$
83,350


$
83,350     Fair
    value measurements using unobservable data inputs
    (Level 3)
  Year Ended September 30,2010


2009Fair value as of September 30, 2009 and 2008,
    respectively(a)

$
83,350


$
151,030Unrealized appreciation(b)


790



350Borrowings


24,900



48,800Repayments


(91,100
)


(116,830
)Transfers into/out of Level 3






Fair value as of September 30, 2010 and 2009, respectively

$
17,940


$
83,350     (a)
    
    ASC 825 was not adopted until the quarter ended June 30,
    2009; therefore, the Credit Facility is shown at its principal
    balance outstanding at September 30, 2008 in the table
    above. 102




---



##### 



(b)
    
    Included in unrealized appreciation on borrowings under line of
    credit on the accompanying consolidated statements of operations
    for the years ended September 30, 2010 and 2009.    Note 6.
    Interest
    Rate Cap Agreement      Note 7.
    Common
    Stock Transactions  Form N-2 No. 333-162592)
      Shares


Total ValueBalance as of September 30, 2008


21,087,574


$
334,164Shelf offering costs






(41
)Return of capital statement of position adjustment(1)






(5,899
)Balance as of September 30, 2009


21,087,574


$
328,224Conversion of recourse to non-recourse loans(2)






(420
)Retirement of employee loan shares(3)


(48,332
)


Shelf offering costs






(28
)Return of capital statement of position adjustment(1)






(820
)Balance as of September 30, 2010


21,039,242


$
326,956     (1)
    
    The timing and characterization of certain income and capital
    gains distributions are determined annually in accordance with
    federal tax regulations which may differ from GAAP. These
    differences primarily relate 103




---



##### 



to items recognized as income for financial statement purposes
    and realized gains for tax purposes. As a result, net investment
    income and net realized gain (loss) on investment transactions
    for a reporting period may differ significantly from
    distributions during such period. Accordingly, the Company made
    a reclassification among certain of its capital accounts without
    impacting the net asset value of the Company.(2)
    
    During the year ended September 30, 2010, the employee
    stock option loans of two former employees of the Adviser were
    converted from recourse to non-recourse loans. The conversions
    were non-cash transactions and were accounted for as repurchases
    of the shares previously received by the employees of the
    Adviser upon exercise of the stock options in exchange for the
    non-recourse notes. The repurchases were accounted for as
    treasury stock transactions at the fair value of the shares,
    which totaled $420.(3)
    
    During the year ended September 30, 2010, subsequent to the
    conversion of the stock option loans of two former employees of
    the Adviser from recourse to non-recourse, the loans came due
    when the underlying market value for the collateral reached the
    outstanding loan amount. As such, and consistent with the loan
    agreements, the shares pledged as collateral were retired in
    March 2010. Since these shares were already accounted for during
    the conversion to non-recourse above, these became non-cash
    events that did not require journal entries to the financial
    statements. However, they resulted in a reduction of the number
    of shares of common stock outstanding.    OutstandingNumber of


Strike Price of


Amount of


Balance ofOptions


Options


Promissory Note


Employee Loans


Maturity

InterestIssue Date

Exercised


Exercised


Issued to Employees


at 9/30/10


Date

Rate on NoteAug-01


393,334



15.00


$
5,900
(1)

$
5,900


Aug-10


4.90
%(2)Aug-01


18,334



15.00



275
(1)


255


Aug-10


4.90
%(2)Aug-01


18,334



15.00



275



275


Aug-11


4.90
%Sep-04


13,332



15.00



200



198


Sep-13


5.00
%Jul-06


13,332



15.00



200



200


Jul-15


8.26
%Jul-06


18,334



15.00



275



275


Jul-15


8.26
%475,000






$
7,125


$
7,103     (1)
    
    On September 7, 2010, the Company entered into redemption
    agreements (the Redemption Agreements) with David
    Gladstone, the Companys Chairman and Chief Executive
    Officer, and Laura Gladstone, the daughter of
    Mr. Gladstone, in connection with the maturity of secured
    promissory notes executed by Mr. Gladstone and
    Ms. Gladstone in favor of the Company on August 23,
    2001, in the principal amounts of $5,900 and $275 (the
    Notes). Mr. and Ms. Gladstone executed the
    Notes in payment of the exercise price of certain stock options
    (the Options) to acquire shares of the
    Companys common stock. Concurrently with the execution of
    the Notes, the Company and Mr. and Ms. Gladstone entered
    into a Stock Pledge Agreements (the Pledge
    Agreements), pursuant to which Mr. and Ms. Gladstone
    granted to the Company a first priority security interest in the
    Pledged Collateral (as defined in the Pledge Agreement), which
    includes 393,334 and 18,334 shares, respectively, of the
    Companys common stock that Mr. and Ms. Gladstone
    acquired pursuant to the exercise of the Options (the
    Pledged Shares). An event of default was triggered
    under the Notes by virtue of Mr. and Ms. Gladstones
    failure to repay the amounts outstanding under the Notes within
    five business days of August 23, 2010. The
    Redemption Agreements provide that, pursuant to the terms
    and conditions thereof, the Company will automatically accept
    and retire the Pledged Shares in partial or full satisfaction,
    as applicable, of Mr. and Ms. Gladstones obligations
    to the Company under the Notes at such time, if ever, that the
    trading price of the Companys common stock reaches $15 per
    share. In entering into the Redemption Agreements, the
    Company reserved all of its existing rights under the Notes and
    the Pledge Agreements, including but not limited to the ability
    to foreclose on the Pledged Collateral at any time. 104




---



##### 



(2)
    
    An event of default was triggered under the Note by virtue of
    the employees failure to repay the amounts outstanding
    within five business days of August 23, 2010. As such, the
    Company charged a default rate of 2% under the Note for periods
    following the date of default.  ASC 505-10-45-2,
  Note 8.
    Net
    Increase (Decrease) in Net Assets Resulting from Operations per
    Share    Year Ended September 30,2010


2009


2008Numerator for basic and diluted net increase (decrease) in net
    assets resulting from operations per share

$
16,394


$
3,783


$
(21,262
)Denominator for basic and diluted shares


21,060,351



21,087,574



19,699,796Basic net increase (decrease) in net assets resulting from
    operations per common share

$
0.78


$
0.18


$
(1.08
)   Note 9.
    Distributions  Distributions
    Dividend perFiscal Year

Record Date

Payment Date

Share2010

October 22, 2009

October 30, 2009

$
0.070November 19, 2009

November 30, 2009


0.070December 22, 2009

December 31, 2009


0.070January 21, 2010

January 29, 2010


0.070February 18, 2010

February 26, 2010


0.070March 23, 2010

March 31, 2010


0.070April 22, 2010

April 30, 2010


0.070May 20, 2010

May 28, 2010


0.070June 22, 2010

June 30, 2010


0.070July 22, 2010

July 30, 2010


0.070August 23, 2010

August 31, 2010


0.070September 22, 2010

September 30, 2010


0.070Annual Total:





$
0.840 105




---



##### 



Dividend perFiscal Year

Record Date

Payment Date

Share2009

October 23, 2008

October 31, 2008

$
0.140November 19, 2008

November 28, 2008


0.140December 22, 2008

December 31, 2008


0.140January 22, 2009

January 30, 2009


0.140February 19, 2009

February 27, 2009


0.140March 23, 2009

March 31, 2009


0.140April 27, 2009

May 8, 2009


0.070May 29, 2009

June 11, 2009


0.070June 22, 2009

June 30, 2009


0.070July 23, 2009

July 31, 2009


0.070August 21, 2009

August 31, 2009


0.070September 22, 2009

September 30, 2009


0.070Annual Total:





$
1.260     Distribution of Income and Gains
      Year Ended September 30,2010


2009Common stock

$
21


$
21Paid in capital


326,935



328,203Notes receivable  employees


(7,103
)


(9,019
)Net unrealized depreciation on investments


(41,800
)


(43,425
)Net unrealized appreciation on borrowings under line of credit


(1,140
)


(350
)Capital loss carryforward


(26,354
)


Post-October tax loss


(901
)


(26,354
)Other temporary differences


(412
)


Net Assets

$
249,246


$
249,076      106




---



##### 



paid-in-capital
  Year Ended September 30,2010

2009Overdistributed net investment income

$
(1,172
)

$
5,539Accumulated Net Realized Losses


1,992



360Paid-in-capital


(820
)


(5,899
)     Year Ended September 30,2010


2009


2008Distributions from:Ordinary Income

$
16,907


$
20,795


$
26,110Long Term Capital Gains






27



120Return of Capital


783



5,748



7,149Total Distributions

$
17,690


$
26,570


$
33,379   Note 10.
    Commitments
    and Contingencies        As of September 30,

As of September 30,2010

2009Unused lines of credit

$
9,304


$
14,055Guarantees


250



250   Note 11.
    Federal
    and State Income Taxes   107




---



##### 



Note 12.
    Financial
    Highlights  Year Ended September 30,2010


2009


2008


2007


2006Per Share Data(1)Net asset value at beginning of period

$
11.81


$
12.89


$
14.97


$
14.02


$
13.41Income from investment operations(2)Net investment income


0.84



1.00



1.35



1.69



1.70Net realized loss on the sale of investments


(0.14
)


(1.25
)


(0.04
)






(0.08
)Realized loss on settlement of derivative






(0.01
)










Net unrealized appreciation on derivative






0.01











Net unrealized appreciation (depreciation) on investments


0.11



0.45



(2.39
)


(0.56
)


0.53Net unrealized appreciation on borrowings under line of credit


(0.03
)


(0.02
)










Total from investment operations


0.78



0.18



(1.08
)


1.13



2.15Distributions to stockholders from(2)(3)Net investment income


(0.80
)


(0.99
)


(1.31
)


(1.48
)


(1.64
)Gains










(0.01
)






Tax return on capital


(0.04
)


(0.27
)


(0.36
)


(0.20
)


Total distributions


(0.84
)


(1.26
)


(1.68
)


(1.68
)


(1.64
)Capital share transactionsIssuance of common stock under shelf offering










0.72



1.55



Issuance of common stock under stock option plan


















1.19Offering costs










(0.04
)


(0.05
)


Repayment of principal on notes receivable


0.07











0.06



0.02Conversion of recourse to non-recourse notes


(0.02
)Reclassification of principal on employee note


0.02Stock compensation expense


















0.02Stock surrendered to settle withholding tax obligation














(0.06
)


Dilutive effect of common stock issuance


















(1.13
)Anti-dilutive effect of common stock reduction


0.03















Total from capital share transactions


0.10







0.68



1.50



0.10Net asset value at end of period

$
11.85


$
11.81


$
12.89


$
14.97


$
14.02Per share market value at beginning of period

$
8.93


$
15.24


$
19.52


$
22.01


$
22.55Per share market value at end of period

$
11.27


$
8.93


$
15.24


$
19.52


$
22.01Total return(4)


37.46
%


(30.94
)%


(13.90
)%


(4.40
)%


5.21
%Shares outstanding at end of period


21,039,242



21,087,574



21,087,574



14,762,574



12,305,008Statement of Assets and Liabilities DataNet assets at end of period

$
249,246


$
249,076


$
271,748


$
220,959


$
172,570Average net assets(5)

$
249,968


$
253,316


$
284,304


$
189,732


$
155,868Senior Securities DataBorrowing under line of credit

$
17,940


$
83,350


$
151,030


$
144,440


$
49,993Asset coverage ratio(6)(7)


1,419
%


396
%


279
%


252
%


443
%Average coverage per unit(7)

$
14,187


$
3,963


$
2,792


$
2,524


$
4,435Ratios/Supplemental DataRatio of expenses to average net assets(8)


7.28
%


9.97
%


9.34
%


10.75
%


6.16
%Ratio of net expenses to average net assets(9)


7.11
%


8.52
%


6.74
%


7.60
%


4.84
%Ratio of net investment income to average net assets


7.10
%


8.30
%


9.34
%


11.73
%


12.42
%     (1)
    
    Based on actual shares outstanding at the end of the
    corresponding period.(2)
    
    Based on weighted average basic per share data. 108




---



##### 



(3)
    
    Distributions are determined based on taxable income calculated
    in accordance with income tax regulations which may differ from
    amounts determined under accounting principles generally
    accepted in the United States of America.(4)
    
    Total return equals the change in the ending market value of the
    Companys common stock from the beginning of the period
    taking into account distributions reinvested in accordance with
    the terms of the Companys 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 the Companys distributions
    please refer to Note 9.(5)
    
    Average net assets are computed using the average of the balance
    of net assets at the end of each month of the reporting period.(6)
    
    As a business development company, the Company is generally
    required to maintain a ratio of at least 200% of total
    consolidated assets, less all liabilities and indebtedness not
    represented by senior securities, to total borrowings and
    guaranty commitments.(7)
    
    Asset coverage ratio is the ratio of the carrying value of the
    Companys total consolidated assets, less all liabilities
    and indebtedness not represented by senior securities, to the
    aggregate amount of senior securities representing indebtedness
    (including interest payable and guarantees). Asset coverage per
    unit is the asset coverage ratio expressed in terms of dollar
    amounts per one thousand dollars of indebtedness.(8)
    
    Ratio of expenses to average net assets is computed using
    expenses before credits from Adviser to the base management and
    incentive fees and including income tax expense.(9)
    
    Ratio of net expenses to average net assets is computed using
    total expenses net of credits from Adviser to the base
    management and incentive fees and including income tax expense.  Note 13.
    Subsequent
    Events  Distributions
    Record Date

Payment Date

Dividend per ShareOctober 21, 2010

October 29, 2010

$
0.07November 19, 2010

November 30, 2010

$
0.07December 23, 2010

December 31, 2010

$
0.07   Investment
    Activity
    Credit
    Facility
   109




---



##### 



Note 14.
    Selected
    Quarterly Data (Unaudited)  Year Ended September 30, 2010Quarter

Quarter

Quarter

QuarterEnded

Ended

Ended

EndedDecember 31,

March 31,

June 30,

September 30,2009

2010

2010

2010Total Investment Income

$
9,804


$
9,814


$
7,969


$
7,952Net Investment Income


4,428



4,474



4,429



4,428Net Increase (Decrease) in Net Assets Resulting From Operations


6,326



7,980



(1,748
)


3,836Basic and Diluted Earnings (Loss) per Weighted Average Common
    Share

$
0.30


$
0.38


$
(0.08
)

$
0.18   Year Ended September 30, 2009Quarter

Quarter

Quarter

QuarterEnded

Ended

Ended

EndedDecember 31,

March 31,

June 30,

September 30,2008

2009

2009

2009Total Investment Income

$
11,808


$
10,929


$
10,598


$
9,283Net Investment Income


5,881



5,555



5,435



4,160Net (Decrease) Increase in Net Assets Resulting From Operations


(9,103
)


10,280



(788
)


3,394Basic and Diluted (Loss) Earnings per Weighted Average Common
    Share

$
(0.43
)

$
0.48


$
(0.04
)

$
0.17  110




---



##### 



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures.  a) Disclosure
    Controls and Procedures
    b) Managements
    Annual Report on Internal Control Over Financial
    Reporting
  Form 10-K.
  c) Attestation
    Report of the Registered Public Accounting Firm
  Form 10-K.
  d) Change
    in Internal Control over Financial Reporting
    Item 9B.
    Other
    Information.   PART III  Form 10-K.
  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Item 11.
    Executive
    Compensation   111




---



##### 



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services.   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  a.
    DOCUMENTS
    FILED AS PART OF THIS REPORT                        
    Schedule 12-14
    Investments in and Advances to Affiliates    
    Exhibits    3
.1

Articles of Amendment and Restatement of the Articles of
    Incorporation, incorporated by reference to Exhibit a.2 to
    Pre-Effective Amendment No. 1 to the Registration Statement
    on
    Form N-2
    (File
    No. 333-63700),
    filed July 27, 2001.3
.2

By-laws, incorporated by reference to Exhibit b to Pre-Effective
    Amendment No. 1 to the Registration Statement on
    Form N-2
    (File
    No. 333-63700),
    filed July 27, 2001.3
.3

Amendment to By-laws, incorporated by reference to
    Exhibit 3.3 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended December 31, 2003 (File
    No. 814-00237),
    filed February 17, 2004. 112




---



##### 



3
.4

Second amendment to By-laws, incorporated by reference to
    Exhibit 99.1 to the Companys Current Report on
    Form 8-K
    (File
    No. 814-00237),
    filed July 10, 2007.4
.1

Form of Direct Registration Transaction Advice for the
    Companys common stock, par value $0.001 per share, the
    rights of holders of which are defined in exhibits 3.1 and
    3.2, incorporated by reference to Exhibit d to Pre-Effective
    Amendment No. 1 to the Registration Statement on
    Form N-2
    (File
    No. 333-63700),
    filed July 27, 2001.4
.2

Specimen Stock Certificate, incorporated by reference to Exhibit
    d.2 to Pre-Effective Amendment No. 3 to the Registration
    Statement on
    Form N-2
    (File
    No. 333-63700),
    filed August 23, 2001.10
.1

Promissory Note of David Gladstone in favor of the Company,
    dated August 23, 2001, incorporated by reference to
    Exhibit 10.4 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended June 30, 2001, filed October 4,
    2001.10
.2

Custodian Agreement between Gladstone Capital Corporation and
    The Bank of New York, dated as of May 5, 2006, incorporated
    by reference to Exhibit 10.3 to the Companys
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (File
    No. 814-00237),
    filed August 1, 2006.10
.3*

Amended and Restated Investment Advisory and Management
    Agreement between Gladstone Capital Corporation and Gladstone
    Management Corporation, dated as of October 1, 2006
    incorporated by reference to Exhibit 99.1 to the
    Companys Current Report on
    Form 8-K
    (File
    No. 814-00237),
    filed on October 5, 2006 (renewed on July 7, 2010).10
.4*

Administration Agreement between Gladstone Capital Corporation
    and Gladstone Administration, LLC, dated as of October 1,
    2006 incorporated by reference to Exhibit 99.1 to the
    Companys Current Report on
    Form 8-K
    (File
    No. 814-00237),
    filed on October 5, 2006 (renewed on July 7, 2010).10
.5

Second Amended and Restated Credit Agreement by and among
    Gladstone Business Loan LLC, Deutsche Bank AG, and certain other
    parties, dated as of June 6, 2008, incorporated by
    reference to Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K
    (File
    No. 814-00237),
    filed June 9, 2008.10
.6

Third Amended and Restated Credit Agreement dated as of
    May 15, 2009 by and among Gladstone Business Loan, LLC as
    Borrower, Gladstone Management Corporation as Servicer, the
    Committed Lenders named therein, the CP Lenders named therein,
    the Managing Agents named therein, and Key Equipment Finance
    Inc. as Administrative Agent, incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    (File
    No. 814-00237),
    filed May 19, 2009.10
.7

Fourth Amended and Restated Credit Agreement dated as of
    March 15, 2010 by and among Gladstone Business Loan, LLC as
    Borrower, Gladstone Management Corporation as Servicer, the
    Committed Lenders named therein, the Managing Agents named
    therein, and Key Equipment Finance Inc. as Administrative Agent,
    incorporated by reference to Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    (File
    No. 814-00237),
    filed March 16, 2010.10
.8

Amendment No. 1 to Fourth Amended and Restated Credit
    Agreement dated as of November 22, 2010 by and among
    Gladstone Business Loan, LLC as Borrower, Gladstone Management
    Corporation as Servicer, the Committed Lenders named therein,
    the Managing Agents named therein, and Key Equipment Finance
    Inc. as Administrative Agent10
.9

Equity Distribution Agreement, dated as of May 17, 2010, by
    and among Gladstone Capital Corporation, Gladstone Management
    Corporation and BB&T Capital Markets, a division of
    Scott & Stringfellow, LLC, incorporated by reference
    to Exhibit 2.h.1 to Post-Effective Amendment No. 1 to
    the Registration Statement on
    Form N-2
    (File
    No. 333-162592),
    filed on May 17, 2010.10
.10

Redemption Agreement, dated as of September 7, 2010,
    between Gladstone Capital Corporation and David Gladstone.11


Computation of Per Share Earnings (included in the notes to the
    audited financial statements contained in this report).21


Subsidiaries of the Registrant.23


Consent of PricewaterhouseCoopers LLP.31
.1

Certification of Chief Executive Officer pursuant to
    section 302 of The Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial Officer pursuant to
    section 302 of The Sarbanes-Oxley Act of 2002.32
.1

Certification of Chief Executive Officer pursuant to
    section 906 of The Sarbanes-Oxley Act of 2002.32
.2

Certification of Chief Financial Officer pursuant to
    section 906 of The Sarbanes-Oxley Act of 2002.     *
    
    Denotes management contract or compensatory plan or arrangement. 113




---



##### 



SIGNATURES    GLADSTONE CAPITAL CORPORATIONDate: November 22, 2010

By:

/s/ GRESFORD GRAYGresford GrayChief Financial Officer     Date: November 22, 2010

By:

/s/ DAVID GLADSTONEDavid GladstoneChief Executive Officer and Chairman of the Board of Directors
    (principal executive officer)   Date: November 22, 2010

By:

/s/ TERRY LEE BRUBAKERTerry Lee BrubakerVice Chairman, Chief Operating Officer and Director   Date: November 22, 2010

By:

/s/ GEORGE STELLJES IIIGeorge Stelljes IIIPresident, Chief Investment Officer and Director   Date: November 22, 2010

By:

/s/ DAVID A.R. DULLUMDavid A.R. DullumDirector   Date: November 22, 2010

By:

/s/ GRESFORD GRAYGresford GrayChief Financial Officer (principal financial and accounting
    officer)   Date: November 22, 2010

By:

/s/ ANTHONY W. PARKERAnthony W. ParkerDirector   Date: November 22, 2010

By:

/s/ MICHELA A. ENGLISHMichela A. EnglishDirector   Date: November 22, 2010

By:

/s/ PAUL ADELGRENPaul AdelgrenDirector   Date: November 22, 2010

By:

/s/ JOHN OUTLANDJohn OutlandDirector   Date: November 22, 2010

By:

/s/ GERARD MEADGerard MeadDirector  114




---



##### 



SCHEDULE 12-14
  GLADSTONE
    CAPITAL CORPORATION
    INVESTMENTS IN AND ADVANCES TO AFFILIATES
  Equity inPrincipal


Interest


Net ProfitAmount of


Earned for


(Loss) forIndebtedness


the Year


the YearHeld at


Ended


Ended


Value atTitle of Issue or

September 30,


September 30,


September 30,


September 30,Name of Issuer(1)

Nature of Indebtedness

2010


2010


2010(2)


2010CONTROL INVESTMENTSBERTL, Inc.

Line of Credit

$
1,319


$



$



$
Common Stock(3)


424











Defiance Integrated

Senior Term Debt


8,325



891







8,325Technologies, Inc.(4)

Common Stock(3)


1











1,543Lindmark Acquisition, LLC

Senior Subordinated Term Debt


10,000



(344
)






5,000Senior Subordinated Term Debt


2,000











1,000Senior Subordinated Term Debt


1,794











897Common Stock(3)


1











LocalTel, LLC

Line of Credit


1,698



43







1,063Senior Term Debt


325



14







Line of Credit


1,170











Senior Term Debt


2,688



(60
)






Senior Term Debt


2,750











Common Stock Warrants(3)














Midwest Metal Distribution, Inc.(4)(5)

Senior Subordinated Term Debt


18,254



2,115







15,539Common Stock(3)


138











U.S. Healthcare

Line of Credit


269











5Communications, Inc.

Line of Credit


450











Common Stock(3)


2,470











Western Directories, Inc.(6)

Line of Credit






(14
)






Preferred Stock(2)














Common Stock(2)














Total Control Investments



$
54,076


$
2,645


$



$
33,372     (1)
    
    Certain of the listed securities are issued by affiliates(s) of
    the indicated portfolio company.(2)
    
    Security is non-income producing.(3)
    
    In accordance with
    Regulation S-X,
    rule 6-03(c)(i),
    the Company does not consolidate its portfolio investments.
    Therefore, no equity in net profit (loss) was recorded as of
    September 30, 2010.(4)
    
    Some or all of the securities in this portfolio company are
    pledged as collateral to the Companys Credit Facility.(5)
    
    Clinton Holdings, LLC was restructured in July 2010 and renamed
    to Midwest Metal Distribution, Inc.(6)
    
    Western Directories, Inc. was written off during the year ended
    September 30, 2010.  115




---



##### 



Value of








Value ofEach Item at








Each Item atTitle of Issue or

September 30,


Gross


Gross


September 30,Name of Issuer(1)

Nature of Indebtedness

2009


Additions


Reductions


2010CONTROL INVESTMENTSBERTL, Inc.

Line of Credit

$



$



$



$
Common Stock(2)














Defiance Integrated

Senior Term Debt


7,183



1,142







8,325Technologies, Inc.(3)

Common Stock(2)


816



727







1,543Lindmark Acquisition, LLC

Senior Subordinated Term Debt


8,675







(3,675
)


5,000Senior Subordinated Term Debt


1,735







(735
)


1,000Senior Subordinated Term Debt


1,049



585



(737
)


897Common Stock(2)














LocalTel, LLC

Line of Credit


1,168



565



(670
)


1,063Senior Term Debt


325







(325
)


Line of Credit


421







(421
)


Senior Term Debt














Senior Term Debt














Common Stock Warrants(2)














Midwest Metal Distribution, Inc.(3)(4)

Senior Subordinated Term Debt


12,013



3,526







15,539Escrow Funding Note


496







(496
)


Common Stock Warrants(2)














U.S. Healthcare

Line of Credit


91







(86
)


5Communications, Inc.

Line of Credit














Common Stock(2)














Western Directories, Inc.(5)

Line of Credit














Preferred Stock(2)














Common Stock(2)














Total Control Investments



$
33,972


$
6,545


$
(7,145
)

$
33,372     (1)
    
    Certain of the listed securities are issued by affiliates(s) of
    the indicated portfolio company.(2)
    
    Security is non-income producing.(3)
    
    Some or all of the securities in this portfolio company are
    pledged as collateral to the Companys Credit Facility.(4)
    
    Clinton Holdings, LLC was restructured in July 2010 and renamed
    to Midwest Metal Distribution, Inc.(5)
    
    Western Directories, Inc. was written off during the year ended
    September 30, 2010. 116