##### Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549   FORM 10-Q   (Mark one): ☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2019 OR  ☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
 TO COMMISSION FILE NUMBER: 814-00237   GLADSTONE CAPITAL CORPORATION (Exact name of registrant as specified in its charter)    MARYLAND

54-2040781(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)1521 WESTBRANCH DRIVE, SUITE 100
MCLEAN, VIRGINIA

22102(Address of principal executive office)

(Zip Code) (703) 287-5800 (Registrants telephone number, including area code) Not Applicable (Former
name, former address and former fiscal year, if changed since last report)   Securities
registered pursuant to Section 12(b) of the Act:  Title of Each Class

Trading
Symbol(s)

Name of Each Exchange
on Which RegisteredCommon Stock, $0.001 par value per share

GLAD

The Nasdaq Global Stock Market LLC6.125% Notes due 2023, $25.00 par value per note

GLADD

The Nasdaq Global Stock Market LLC5.375% Notes due 2024, $25.00 par value per note

GLADL

The Nasdaq Global Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  ☒    No  ☐ Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files).    Yes  ☐    No  ☐ Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer,
accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.  Large accelerated filer

☐

Accelerated filer

☒Non-accelerated filer

☐

Smaller reporting company

☐Emerging growth company

☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes  ☐    No  ☒ The number of shares of the issuers common stock,
$0.001 par value per share, outstanding as of February 4, 2020 was 31,151,579.




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION TABLE OF CONTENTS  PART I.

FINANCIAL INFORMATIONItem 1.

Financial Statements (Unaudited)Consolidated Statements of Assets and Liabilities as of December 
31, 2019 and September 30, 2019


2Consolidated Statements of Operations for the three months ended December 31,
 2019 and 2018


3Consolidated Statements of Changes in Net Assets for the three months ended December 31,
 2019 and 2018


4Consolidated Statements of Cash Flows for the three months ended December 31,
 2019 and 2018


5Consolidated Schedules of Investments as of December 
31, 2019 and September 30, 2019


6Notes to Consolidated Financial Statements


18Item 2.

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


39Overview


39Results of Operations


43Liquidity and Capital Resources


47Item 3.

Quantitative and Qualitative Disclosures About Market Risk


53Item 4.

Controls and Procedures


53PART II.

OTHER INFORMATIONItem 1.

Legal Proceedings


54Item 1A.

Risk Factors


54Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


55Item 3.

Defaults Upon Senior Securities


55Item 4.

Mine Safety Disclosures


55Item 5.

Other Information


55Item 6.

Exhibits


56SIGNATURES


57  1




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)  December 31,2019


September 30,2019ASSETSInvestments, at fair value:Non-Control/Non-Affiliate
investments (Cost of $386,462and $361,272, respectively)

$
373,808


$
345,876Affiliate investments (Cost of $39,721and $38,921, respectively)


36,081



35,421Control investments (Cost of $28,263 and $28,259, respectively)


19,119



21,578Cash and cash equivalents


1,766



15,707Restricted cash and cash equivalents


35



41Interest receivable, net


2,904



2,625Due from administrative agent


3,173



2,826Deferred financing costs, net


679



866Other assets, net


1,224



1,129TOTAL ASSETS

$
438,789


$
426,069LIABILITIESBorrowings, at fair value (Cost of $90,800 and $66,900, respectively)

$
90,984


$
67,067Notes payable, net (Cost of $96,313 and $57,500, respectively)


93,362



55,750Mandatorily redeemable preferred stock, $0.001 par value per share, $25 liquidation preference
per share; 5,440,000 and 5,440,000 shares authorized, respectively, and 0 and 2,070,000 shares issued and outstanding, respectively, net






50,354Accounts payable and accrued expenses


660



576Interest payable


1,237



842Fees due to Adviser(A)


870



1,452Fee due to Administrator(A)


470



366Other liabilities


417



332TOTAL LIABILITIES

$
188,000


$
176,739Commitments and contingencies(B)NET ASSETSCommon stock, $0.001 par value per share, 44,560,000 and 44,560,000 shares authorized,
respectively, and 31,050,954and30,345,923 shares issued and outstanding, respectively

$
31


$
30Capital in excess of par value


363,884



358,113Cumulative net unrealized depreciation of investments


(25,438
)


(25,577
)Cumulative net unrealized appreciation of other


(184
)


(167
)Under distributed net investment income


47



136Accumulated net realized losses


(87,551
)


(83,205
)Total distributable loss


(113,126
)


(108,813
)TOTAL NET ASSETS

$
250,789


$
249,330NET ASSET VALUE PER COMMON SHARE

$
8.08


$
8.22  (A)
Refer to Note 4Related Party Transactions in the accompanying Notes to Consolidated Financial
Statements for additional information. (B)
Refer to Note 10Commitments and Contingencies in the accompanying Notes to Consolidated
Financial Statements for additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.  2




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)  Three Months Ended December 31,2019


2018INVESTMENT INCOMEInterest incomeNon-Control/Non-Affiliate
investments

$
9,648


$
9,572Affiliate investments


1,046



1,175Control investments


422



512Cash and cash equivalents


8



16Total interest income (excluding PIK interest income)


11,124



11,275PIK interest incomeNon-Control/Non-Affiliate
investments


332



337Affiliate investments






49Control investments






26Total PIK interest income


332



412Total interest income


11,456



11,687Dividend incomeNon-Control/Non-Affiliate
investments


164



119Control investments


186



Total dividend income


350



119Other income


353



103Total investment income


12,159



11,909EXPENSESBase management fee(A)


1,852



1,828Loan servicing fee(A)


1,403



1,262Incentive fee(A)


1,394



1,360Administration fee(A)


371



345Interest expense on borrowings and notes payable


2,537



1,898Dividends on mandatorily redeemable preferred stock


9



776Amortization of deferred financing costs and discounts


361



300Professional fees


185



267Other general and administrative expenses


346



323Expenses before credits from Adviser


8,458



8,359Credit to base management fee - loan servicing
fee(A)


(1,403
)


(1,262
)Credit to fees from Adviser -
other(A)


(1,313
)


(1,174
)Total expenses, net of credits


5,742



5,923NET INVESTMENT INCOME


6,417



5,986NET REALIZED AND UNREALIZED GAIN (LOSS)Net realized gain (loss):Non-Control/Non-Affiliate
investments


(4,434
)


(26,856
)Affiliate investments






2Control investments






(9
)Other


(1,407
)


Total net realized gain (loss)


(5,841
)


(26,863
)Net unrealized appreciation (depreciation):Non-Control/Non-Affiliate
investments


2,742



19,707Affiliate investments


(140
)


4,204Control investments


(2,463
)


(6,742
)Other


(17
)


Total net unrealized appreciation


122



17,169Net realized and unrealized gain (loss)


(5,719
)


(9,694
)NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$
698


$
(3,708
)BASIC AND DILUTED PER COMMON SHARE:Net investment income

$
0.21


$
0.21Net increase (decrease) in net assets resulting from operations

$
0.02


$
(0.13
)WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:Basic and Diluted


30,513,530



28,504,715  (A)
Refer to Note 4Related Party Transactions in the accompanying Notes to Consolidated Financial
Statements for additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.  3




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) (UNAUDITED)  2019


2018NET ASSETS, SEPTEMBER 30

$
249,330


$
237,092OPERATIONSNet investment income


6,417



5,986Net realized gain (loss) on investments


(4,434
)


(26,863
)Realized gain (loss) on other


(1,407
)


Net unrealized appreciation (depreciation) of investments


139



17,169Net unrealized depreciation (appreciation) of other


(17
)


Net increase (decrease) in net assets resulting from operations


698



(3,708
)DISTRIBUTIONSDistributions to common stockholders from net investment income ($0.21 per share)(A)


(6,417
)


(5,986
)CAPITAL TRANSACTIONSIssuance of common stock


7,315



28Discounts, commissions and offering costs for issuance of common stock


(137
)


Net increase (decrease) in net assets resulting from capital transactions


7,178



28NET INCREASE (DECREASE) IN NET ASSETS


1,459



(9,666
)NET ASSETS, DECEMBER 31

$
250,789


$
227,426  (A)
Refer to Note 9  Distributions to Common Stockholders in the accompanying Notes to Consolidated
Financial Statements for additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.  4




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)  Three Months Ended December 31,2019


2018CASH FLOWS FROM OPERATING ACTIVITIESNet increase (decrease) in net assets resulting from operations

$
698


$
(3,708
)Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net
cash provided by (used) in operating activities:Purchase of investments


(42,535
)


(59,228
)Principal repayments on investments


12,656



8,868Net proceeds from sale of investments


(25
)


(13
)Increase in investments due to PIK interest


(328
)


(314
)Net change in premiums, discounts and amortization


(196
)


(108
)Net realized loss (gain) on investments


4,434



26,863Net realized loss (gain) on other


1,407



Net unrealized depreciation (appreciation) of investments


(139
)


(17,169
)Net unrealized appreciation (depreciation) of other


17



Changes in assets and liabilities:Amortization of deferred financing fees


361



300Decrease (increase) in interest receivable, net


(279
)


(279
)Decrease (increase) in funds due from administrative agent


(347
)


670Decrease (increase) in other assets, net


(123
)


20Increase (decrease) in accounts payable and accrued expenses


84



74Increase (decrease) in interest payable


395



534Increase (decrease) in fees due to
Adviser(A)


(582
)


(36
)Increase (decrease) in fees due to
Administrator(A)


104



28Increase (decrease) in other liabilities


85



91Net cash provided by (used in) operating activities


(24,313
)


(43,407
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from line of credit


84,300



59,000Repayments on line of credit


(60,400
)


(66,800
)Redemption of preferred stock


(51,750
)


Proceeds from issuance of long-term debt


38,813



57,500Deferred financing fees


(1,383
)


(1,941
)Proceeds from issuance of common stock


7,315



28Discounts, commissions and offering costs for issuance of common stock


(112
)


Distributions paid to common stockholders


(6,417
)


(5,986
)Net cash provided by (used in) financing activities


10,366



41,801NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH
EQUIVALENTS


(13,947
)


(1,606
)CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF
PERIOD


15,748



2,004CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, END OF
PERIOD

$
1,801


$
398CASH PAID FOR INTEREST

$
2,142


$
1,364  (A)
Refer to Note 4Related Party Transactions in the accompanying Notes to Consolidated Financial
Statements for additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.  5




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2019 (UNAUDITED) (DOLLAR
AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(W)(Y)

Principal/Shares/Units(J)(X)


Cost


Fair ValueNON-CONTROL/NON-AFFILIATE
INVESTMENTS(M)  149.1%Secured First Lien Debt  79.7%Aerospace and Defense  4.8%Antenna Research Associates, Inc.  Term Debt (L + 10.0%, 12.0% Cash, 4.0% PIK, Due 11/2023)(E)

$
12,093


$
12,093


$
12,093Automobile  0.0%Meridian Rack & Pinion, Inc.(S)
 Term Debt (L + 11.5%, 13.5% Cash, Due 6/2020)(E)(H)(Z)


4,140



4,140



Beverage, Food, and Tobacco  9.6%Café Zupas  Line of Credit, $4,000 available (L + 7.9%, 9.6% Cash, Due 12/2024)(C)










Café Zupas  Delayed Draw Term Loan, $5,000 available (L + 7.9%, 9.6% Cash, Due
12/2024)(C)










Café Zupas  Term Debt (L + 7.9%, 9.6% Cash, Due 12/2024)(C)


24,000



24,000



24,00024,000



24,000Buildings and Real Estate  0.9%GFRC 360, LLC  Line of Credit, $50 available (L + 8.0%, 9.8% Cash, Due 9/2020)(C)


1,150



1,150



1,147GFRC 360, LLC  Term Debt (L + 8.0%, 9.8% Cash, Due 9/2020)(C)


1,000



1,000



9982,150



2,145Diversified/Conglomerate Service  32.9%DKI Ventures, LLC  Line of Credit, $2,500 available (L + 8.3%, 10.0% Cash, Due 12/2021)(C)










DKI Ventures, LLC  Delayed Draw Term Loan, $5,000 available (L + 8.3%, 10.0% Cash, Due
12/2023)(C)










DKI Ventures, LLC  Term Debt (L + 8.3%, 10.0% Cash, Due 12/2023)(C)


5,973



5,973



5,316ENET Holdings, LLC  Line of Credit, $1,000 available (L + 7.3%, 9.0% Cash, Due 4/2022)(C)










ENET Holdings, LLC  Term Debt (L + 7.3%, 9.0% Cash, Due 4/2025)(C)


29,000



29,000



28,058R2i Holdings, LLC  Line of Credit, $2,000 available (8.0% Cash, Due 12/2021)(C)(F)










R2i Holdings, LLC  Term Debt (8.0% Cash, Due 12/2023)(C)(F)


19,625



19,625



18,545Travel Sentry, Inc.  Term Debt (L + 8.0%, 9.9% Cash, Due 12/2021)(C)(U)


6,097



6,097



6,113Universal Survey Center, Inc.  Line of Credit, $500 available (L + 7.3%, 9.3% Cash, Due
9/2022)(C)


500



500



500Universal Survey Center, Inc.  Term Debt (L + 7.3%, 9.3% Cash, Due 9/2024)(C)


13,500



13,500



13,500Vision Government Solutions, Inc.  Line of Credit, $2,500 available (L + 8.8%, 10.5% Cash,
Due 12/2022)(C)










Vision Government Solutions, Inc.  Term Debt (L + 8.8%, 10.5% Cash, Due 12/2022)(C)


10,475



10,436



10,44985,131



82,481Healthcare, Education, and Childcare  11.1%EL Academies, Inc.  Line of Credit, $2,000 available (L + 8.0%, 9.8% Cash, Due 8/2020)(C)










EL Academies, Inc.  Delayed Draw Term Loan, $0 available (L + 8.0%, 9.8% Cash, Due 8/2022)(C)


16,000



15,981



15,960EL Academies, Inc.  Term Debt (L + 8.0%, 9.8% Cash, Due 8/2022)(C)


12,000



11,977



11,97027,958



27,930Machinery  2.5%Arc Drilling Holdings LLC  Line of Credit, $875 available (L + 8.0%, 9.8% Cash, Due 11/2020)(C)


125



125



125Arc Drilling Holdings LLC  Term Debt (L + 9.5%, 11.3% Cash, 3.0% PIK, Due 11/2022)(C)


5,886



5,886



5,732Precision International, LLC  Line of Credit, $500 available (L + 7.5%, 9.3% Cash, Due
9/2021)(C)










Precision International, LLC  Term Debt (10.0% Cash, Due 9/2021)(C)(F)


436



436



4366,447



6,293Printing and Publishing  0.0%Chinese Yellow Pages Company  Line of Credit, $0 available (PRIME + 4.0%, 8.8% Cash, Due
2/2015)(E)(V)


107



107



Telecommunications  17.9%B+T Group Acquisition, Inc.(S)  Line of
Credit, $0 available (L + 11.0%, 13.0% Cash, Due 12/2021)(C)


1,200



1,200



1,185B+T Group Acquisition, Inc.(S)  Term
Debt (L + 11.0%, 13.0% Cash, Due 12/2021)(C)


6,000



6,000



5,925NetFortris Corp.  Term Debt (L + 9.0%, 10.8% Cash, Due 2/2021)(C)


23,302



23,275



22,847XMedius America, Inc.  Term Debt (L + 9.3%, 11.0% Cash, Due 10/2022)(C)


8,415



8,415



8,426XMedius Solutions Inc.  Term Debt (L + 9.3%, 11.0% Cash, Due 10/2022)(C)


6,480



6,480



6,49645,370



44,879Total Secured First Lien Debt





$
207,396


$
199,821  THE ACCOMPANYING NOTES
ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  6




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2019 (UNAUDITED) (DOLLAR
AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(W)(Y)

Principal/Shares/Units(J)(X)


Cost


Fair ValueSecured Second Lien Debt  56.1%Automobile  3.9%Sea Link International IRB, Inc.  Term Debt (11.3% Cash, Due 3/2023)(C)(F)

$
10,000


$
10,000


$
9,900Beverage, Food, and Tobacco  4.1%8th Avenue Food & Provisions, Inc.
 Term Debt (L + 7.8%, 9.5% Cash, Due 10/2026)(D)


3,683



3,707



3,609The Mochi Ice Cream Company  Term Debt (L + 10.5%, 12.3% Cash, Due 12/2023)(Q)(Z)


6,750



6,730



6,75010,437



10,359Cargo Transportation  5.2%AG Transportation Holdings, LLC  Term Debt (L + 10.0%, 13.3% Cash, Due 12/2020)(C)


13,000



13,000



13,000Chemicals, Plastics, and Rubber  4.3%Phoenix Aromas & Essential Oils, LLC  Term Debt (L + 9.5%, 11.3% Cash, Due 5/2024)(C)


10,000



10,000



9,888Vertellus Holdings LLC  Term Debt (L + 12.0%, 13.8% Cash, Due 10/2021)(C)


1,099



1,099



1,08111,099



10,969Diversified/Conglomerate Manufacturing  1.9%Tailwind Smith Cooper Intermediate Corporation  Term Debt (L + 9.0%, 10.8% Cash, Due 5/2027)(D)


5,000



4,761



4,675Diversified/Conglomerate Service  15.5%CHA Holdings, Inc.  Term Debt (L + 8.8%, 10.7% Cash, Due 4/2026)(D)(U)


3,000



2,949



3,030DiscoverOrg, LLC  Term Debt (L + 8.5%, 10.3% Cash, Due 2/2027)(D)


3,303



3,275



3,303Drive Chassis Holdco, LLC  Term Debt (L + 8.3%, 10.0% Cash, Due 4/2026)(D)


5,000



4,766



4,550Gray Matter Systems, LLC  Term Debt (12.0% Cash, Due 11/2023)(C)(F)


11,100



11,100



11,017Keystone Acquisition Corp.  Term Debt (L + 9.3%, 11.2% Cash, Due 5/2025)(D)(U)


4,000



3,938



3,880Prophet Brand Strategy  Delayed Draw Term Loan, $5,000 available (L + 9.0%, 11.0% Cash, Due
2/2025)(C)










Prophet Brand Strategy  Term Debt (L + 9.0%, 11.0% Cash, Due 2/2025)(C)


13,000



13,000



12,96839,028



38,748Healthcare, Education, and Childcare  2.3%Medical Solutions Holdings, Inc.  Term Debt (L + 8.4%, 10.1% Cash, Due 6/2025)(D)


3,000



2,965



2,850Medical Solutions Holdings, Inc.  Term Debt (L + 8.8%, 10.5% Cash, Due 6/2025)(D)


3,000



2,941



2,9405,906



5,790Home and Office Furnishings, Housewares and Durable Consumer Products  3.9%Belnick, Inc.  Term Debt (11.0% Cash, Due 8/2023)(C)(F)


10,000



10,000



9,700Hotels, Motels, Inns, and Gaming  3.0%Vacation Rental Pros Property Management, LLC  Term Debt (L + 10.0%, 11.8% Cash, 3.0% PIK,
Due 6/2023)(C)


7,651



7,651



7,586Machinery  0.4%CPM Holdings, Inc.  Term Debt (L + 8.3%, 10.0% Cash, Due 11/2026)(D)


1,000



1,000



975Oil and Gas  11.6%Imperative Holdings Corporation  Term Debt (L + 10.3%, 12.3% Cash, Due 9/2022)(C)


29,500



29,500



28,984Total Secured Second Lien Debt





$
142,382


$
140,686  THE ACCOMPANYING NOTES
ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  7




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2019 (UNAUDITED) (DOLLAR
AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(W)(Y)

Principal/Shares/Units(J)(X)


Cost


Fair ValueUnsecured Debt  1.6%Healthcare, education, and childcare  1.6%Edmentum Ultimate Holdings, LLC  Term Debt (10.0% PIK, Due 6/2020)(C)(F)

$
4,095


$
4,095


$
4,049Preferred Equity  3.1%Automobile  0.0%Meridian Rack & Pinion, Inc.(S) Preferred Stock(E)(G)(Z)


1,449


$
1,449


$
Beverage, Food, and Tobacco  0.0%Triple H Food Processors, LLC  Preferred
Stock(E)(G)


75



75



76Buildings and Real Estate  0.5%GFRC 360, LLC  Preferred
Stock(E)(G)


1,000



1,025



1,320Diversified/Conglomerate Service  0.0%Frontier Financial Group Inc.  Preferred
Stock(E)(G)


766



500



Frontier Financial Group Inc.  Preferred Stock Warrant(E)(G)


169







500



Oil and Gas  1.9%FES Resources Holdings LLC  Preferred Equity Units(E)(G)


6,350



6,350



2,601Imperative Holdings Corporation  Preferred Equity Units(E)(G)


13,740



632



2,1336,982



4,734Telecommunications  0.7%B+T Group Acquisition, Inc.(S) 
Preferred Stock(E)(G)


6,130



2,024



NetFortris Corp.  Preferred
Stock(E)(G)


7,890,860



789



1,7342,813



1,734Total Preferred Equity





$
12,844


$
7,864Common Equity  8.6%Aerospace and Defense  1.2%Antenna Research Associates, Inc.  Common Equity Units(E)(G)


4,283


$
4,283


$
3,032Automobile 0.3%Sea Link International IRB, Inc. Common Equity Units(E)(G)


823,333



824



862Beverage, Food, and Tobacco  1.3%The Mochi Ice Cream Company  Common
Stock(G)(Q)(Z)


450



450



3,000Triple H Food Processors, LLC  Common
Stock(E)(G)


250,000



250



185700



3,185Buildings and Real Estate  0.0%GFRC 360, LLC  Common Stock
Warrants(E)(G)


45.0
%






Cargo Transportation  0.9%AG Transportation Holdings, LLC  Member Profit Participation(E)(G)


18.0
%


1,000



1,527AG Transportation Holdings, LLC  Profit Participation Warrants(E)(G)


12.0
%


244



7591,244



2,286Chemicals, Plastics, and Rubber  0.2%Vertellus Holdings LLC  Common Stock
Units(E)(G)


879,121



3,018



398Healthcare, Education, and Childcare  1.9%Edmentum Ultimate Holdings, LLC  Common
Stock(E)(G)


21,429



2,636



GSM MidCo LLC  Common
Stock(E)(G)


767



767



632Leeds Novamark Capital I, L.P.  Limited Partnership Interest ($843 uncalled capital
commitment)(G)(L)(R)


3.5
%


2,152



4,1765,555



4,808Machinery  0.4%Arc Drilling Holdings LLC  Common
Stock(E)(G)


15,000



1,500



540Precision International, LLC  Membership Unit Warrant(E)(G)


33.3
%






5361,500



1,076Oil and Gas  0.1%FES Resources Holdings LLC  Common Equity
Units(E)(G)


6,233







Total Safety Holdings, LLC  Common
Equity(E)(G)


435



499



166499



166  THE ACCOMPANYING NOTES
ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  8




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2019 (UNAUDITED) (DOLLAR
AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(W)(Y)

Principal/Shares/Units(J)(X)


Cost


Fair ValuePersonal and Non-Durable Consumer Products
(Manufacturing Only)  0.1%Funko Acquisition Holdings, LLC(S) 
Common Units(G)(T)


12,180



59



142Telecommunications  0.0%B+T Group Acquisition, Inc.(S)  Common
Stock Warrant(E)(G)


1.5
%






NetFortris Corp.  Common Stock
Warrant(E)(G)


1



1



1



Textiles and Leather  2.2%Targus Cayman HoldCo, Ltd.  Common
Stock(E)(G)


3,076,414



2,062



5,433Total Common Equity





$
19,745


$
21,388Total
Non-Control/Non-Affiliate Investments





$
386,462


$
373,808AFFILIATE INVESTMENTS(N)
14.4%Secured First Lien Debt  3.5%Diversified/Conglomerate Manufacturing  3.5%Edge Adhesives Holdings, Inc.(S)  Line
of Credit, $400 available (L + 8.0%, 10.0% Cash, Due 3/2020)(C)

$
800


$
800


$
792Edge Adhesives Holdings, Inc.(S)  Term
Debt (L + 10.5%, 12.5% Cash, Due 2/2022)(C)


6,200



6,200



5,983Edge Adhesives Holdings, Inc.(S)  Term
Debt (L + 11.8%, 13.8% Cash, Due 2/2022)(C)


2,000



2,000



1,9409,000



8,715Total Secured First Lien Debt





$
9,000


$
8,715Secured Second Lien Debt  9.9%Diversified Natural Resources, Precious Metals and Minerals  8.4%Lignetics, Inc.  Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)

$
6,000


$
6,000


$
5,963Lignetics, Inc.  Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)


8,000



8,000



7,950Lignetics, Inc.  Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)


3,300



3,300



3,279Lignetics, Inc.  Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)


4,000



4,000



3,97521,300



21,167Personal and Non-Durable Consumer Products
(Manufacturing Only)  1.5%Canopy Safety Brands, LLC  Term Debt (L + 10.5%, 12.3% Cash, Due 7/2022)(C)


3,750



3,750



3,726Total Secured Second Lien Debt





$
25,050


$
24,893Preferred Equity  0.6%Diversified/Conglomerate Manufacturing  0.0%Edge Adhesives Holdings, Inc.(S) 
Preferred Stock(E)(G)


2,516


$
2,516


$
Diversified Natural Resources, Precious Metals and Minerals  0.4%Lignetics, Inc.  Preferred
Stock(E)(G)


40,000



800



964Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.2%Canopy Safety Brands, LLC  Preferred
Stock(E)(G)


500,000



500



646Total Preferred Equity





$
3,816


$
1,610Common Equity  0.4%Diversified Natural Resources, Precious Metals and Minerals  0.3%Lignetics, Inc.  Common
Stock(E)(G)


152,603


$
1,855


$
717Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.1%Canopy Safety Brands, LLC  Common
Stock(E)(G)


500,000







146Total Common Equity





$
1,855


$
863Total Affiliate Investments





$
39,721


$
36,081  THE ACCOMPANYING NOTES
ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  9




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 2019 (UNAUDITED) (DOLLAR
AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(W)(Y)

Principal/Shares/Units(J)(X)


Cost


Fair ValueCONTROL INVESTMENTS(O) 
7.6%Secured First Lien Debt  2.7%Diversified/Conglomerate Manufacturing  2.1%LWO Acquisitions Company LLC  Term Debt (L + 7.5%, 10.0% Cash, Due 6/2021)(E)

$
6,000


$
6,000


$
5,304LWO Acquisitions Company LLC  Term Debt (Due 6/2021)(E)(P)


10,632



10,632



16,632



5,304Printing and Publishing  0.6%TNCP Intermediate HoldCo, LLC  Line of Credit, $500 available (8.0% Cash, Due 9/2021)(E)(F)


1,500



1,469



1,500Total Secured First Lien Debt





$
18,101


$
6,804Secured Second Lien Debt  3.2%Automobile 3.2%Defiance Integrated Technologies, Inc.  Term Debt (L + 9.5%, 11.3% Cash, Due 5/2026)(E)

$
8,065


$
8,065


$
8,065Unsecured Debt  0.0%Diversified/Conglomerate Manufacturing  0.0%LWO Acquisitions Company LLC  Term Debt (Due 6/2020)(E)(P)

$
95


$
95


$
Common Equity  1.7%Automobile 0.6%Defiance Integrated Technologies, Inc.  Common Stock(E)(G)


33,321


$
580


$
1,563Diversified/Conglomerate Manufacturing  0.0%LWO Acquisitions Company LLC  Common
Units(E)(G)


921,000



921



Machinery  1.0%PIC 360, LLC  Common Equity
Units(E)(G)


750



1



2,535Printing and Publishing  0.1%TNCP Intermediate HoldCo, LLC  Common Equity Units(E)(G)


790,000



500



152Total Common Equity





$
2,002


$
4,250Total Control Investments





$
28,263


$
19,119TOTAL INVESTMENTS  171.1%





$
454,446


$
429,008  (A)
Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio
company. The majority of the securities listed, totaling $385.3 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5Borrowings in the accompanying Notes to Consolidated
Financial Statements.Under the Investment Company Act of 1940, as amended, (the 1940 Act), we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying
assets represent at least 70% of our total assets. As of December 31, 2019, our investments in Leeds Novamark Capital I, L.P. (Leeds), Funko Acquisition Holdings, LLC (Funko), and XMedius Solutions Inc.
(XMedius) are considered non-qualifying assets under Section 55 of the 1940 Act. Such non-qualifying assets represent 2.5% of total investments, at fair
value, as of December 31, 2019. (B)
Unless indicated otherwise, all cash interest rates are indexed to
30-day London Interbank Offered Rate (LIBOR or L), which was 1.76% as of December 31, 2019. If applicable,
paid-in-kind (PIK) interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash
interest rate is the greater of the floor or LIBOR plus a spread. Due dates represent the contractual maturity date. (C)
Fair value was based on an internal yield analysis or on estimates of value submitted by ICE Data Pricing and
Reference Data, LLC. (D)
Fair value was based on the indicative bid price on or near December 31, 2019, offered by the respective
syndication agents trading desk. (E)
Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the
portfolio companys securities in order of their relative priority in the capital structure. (F)
Debt security has a fixed interest rate. (G)
Security is non-income producing. (H)
Debt security is on non-accrual status. (I)
Reserved. (J)
Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned
within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase. (K)
Reserved. (L)
There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the
entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured. (M)
Non-Control/Non-Affiliate
investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities. (N)
Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between
and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities. (O)
Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling
influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.  10




---

##### Table of Contents

(P)
Debt security does not have a stated interest rate that is payable thereon. (Q)
Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to
occur imminently. (R)
Fair value was based on net asset value provided by the fund as a practical expedient. (S)
One of our affiliated funds, Gladstone Investment Corporation,
co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission. (T)
Our investment in Funko was valued using Level 2 inputs within the Financial Accounting Standards Board
(FASB) Accounting Standard Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820) fair value hierarchy. Our common units in Funko are convertible to class A common stock in
Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of marketability. Funko, Inc. is traded on the Nasdaq Global Select Market
under the trading symbol FNKO. Refer to Note 3Investments in the accompanying Notes to Consolidated Financial Statements for additional information. (U)
The cash interest rate on this investment was indexed to 90-day LIBOR,
which was 1.91% as of December 31, 2019. (V)
The cash interest rate on this investment was indexed to the U.S. Prime Rate (PRIME), which was
4.75% as of December 31, 2019. (W)
Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the ASC 820 fair
value hierarchy. Refer to Note 3Investments in the accompanying Notes to Consolidated Financial Statements for additional information. (X)
Represents the principal balance for debt investments and the number of shares/units held for equity
investments. Warrants are represented as a percentage of ownership, as applicable. (Y)
Category percentages represent the fair value of each category and subcategory as a percentage of net assets as
of December 31, 2019. (Z)
Investment was exited subsequent to December 31, 2019. Refer to Note 15Subsequent Eventsin
the accompanyingNotes to Consolidated Financial Statements for additional information. THE ACCOMPANYING NOTES
ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  11




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(W)(Y)

Principal/Shares/Units(J)(X)


Cost


Fair ValueNON-CONTROL/NON-AFFILIATE
INVESTMENTS(M)  138.7%Secured First Lien Debt  65.6%Aerospace and Defense  4.8%Antenna Research Associates, Inc.  Term Debt (L + 10.0%, 12.0% Cash, 4.0% PIK, Due 11/2023)(C)

$
12,124


$
12,124


$
12,033Automobile  0.0%Meridian Rack & Pinion, Inc.(S)
 Term Debt (L + 11.5%, 13.5% Cash, Due 12/2019)(E)(H)


4,140



4,140



112Buildings and Real Estate  0.9%GFRC 360, LLC  Line of Credit, $50 available (L + 8.0%, 10.0% Cash, Due 9/2020)(C)


1,150



1,150



1,143GFRC 360, LLC  Term Debt (L + 8.0%, 10.0% Cash, Due 9/2020)(C)


1,000



1,000



9942,150



2,137Diversified/Conglomerate Service  28.4%DKI Ventures, LLC  Line of Credit, $2,500 available (L + 8.3%, 10.3% Cash, Due 12/2021)(C)










DKI Ventures, LLC  Delayed Draw Term Loan, $5,000 available (L + 8.3%, 10.3% Cash, Due
12/2023)(C)










DKI Ventures, LLC  Term Debt (L + 8.3%, 10.3% Cash, Due 12/2023)(C)


6,054



6,054



5,827ENET Holdings, LLC  Line of Credit, $1,000 available (L + 7.3%, 9.3% Cash, Due 4/2022)(C)










ENET Holdings, LLC  Term Debt (L + 7.3%, 9.3% Cash, Due 4/2025)(C)


29,000



29,000



28,420R2i Holdings, LLC  Line of Credit, $2,000 available (L + 8.0%, 10.0% Cash, Due 12/2021)(C)










R2i Holdings, LLC  Term Debt (L + 8.0%, 10.0% Cash, Due 12/2023)(C)


19,625



19,625



18,987Travel Sentry, Inc.  Term Debt (L + 8.0%, 10.1% Cash, Due 12/2021)(C)(U)


6,939



6,939



6,930Vision Government Solutions, Inc.  Line of Credit, $2,500 available (L + 8.8%, 10.8% Cash,
Due 12/2022)(C)










Vision Government Solutions, Inc.  Term Debt (L + 8.8%, 10.8% Cash, Due 12/2022)(C)


10,600



10,558



10,54772,176



70,711Healthcare, Education, and Childcare  11.2%EL Academies, Inc.  Line of Credit, $2,000 available (L + 8.8%, 10.8% Cash, Due 8/2020)(C)










EL Academies, Inc.  Delayed Draw Term Loan, $0 available (L + 8.8%, 10.8% Cash, Due 8/2022)(C)


16,000



15,980



15,940EL Academies, Inc.  Term Debt (L + 8.8%, 10.8% Cash, Due 8/2022)(C)


12,000



11,975



11,95527,955



27,895Machinery  2.5%Arc Drilling Holdings LLC  Line of Credit, $875 available (L + 8.0%, 10.0% Cash, Due
11/2020)(C)


125



125



125Arc Drilling Holdings LLC  Term Debt (L + 9.5%, 11.5% Cash, 3.0% PIK, Due 11/2022)(C)


5,916



5,916



5,663Precision International, LLC  Line of Credit, $500 available (L + 7.5%, 9.5% Cash, Due
9/2021)(C)










Precision International, LLC  Term Debt (10.0% Cash, Due 9/2021)(C)(F)


436



436



4376,477



6,225Printing and Publishing  0.0%Chinese Yellow Pages Company  Line of Credit, $0 available (PRIME + 4.0%, 9.0% Cash, Due
2/2015)(E)(V)


107



107



Telecommunications  17.8%B+T Group Acquisition, Inc.(S)  Line of
Credit, $435 available (L + 11.0%, 13.0% Cash, Due12/2021)(C)


765



765



759B+T Group Acquisition, Inc.(S)  Term
Debt (L + 11.0%, 13.0% Cash, Due 12/2021)(C)


6,000



6,000



5,955NetFortris Corp.  Term Debt (L + 9.0%, 11.0% Cash, Due 2/2021)(C)


23,302



23,269



22,137XMedius America, Inc.  Term Debt (L + 9.3%, 11.3% Cash, Due 10/2022)(Q)


8,690



8,690



8,777XMedius Solutions Inc.  Term Debt (L + 9.3%, 11.3% Cash, Due 10/2022)(Q)


6,683



6,683



6,74945,407



44,377Total Secured First Lien Debt





$
170,536


$
163,490  THE ACCOMPANYING NOTES
ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  12




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(W)(Y)

Principal/Shares/Units(J)(X)


Cost


Fair ValueSecured Second Lien Debt  59.6%Automobile  4.0%Sea Link International IRB, Inc.  Term Debt (11.3% Cash, Due 3/2023)(C)(F)

$
10,000


$
9,986


$
9,913Beverage, Food, and Tobacco  4.2%8th Avenue Food & Provisions, Inc.
 Term Debt (L + 7.8%, 9.8% Cash, Due 10/2026)(D)


3,683



3,707



3,628The Mochi Ice Cream Company  Term Debt (L + 10.5%, 12.5% Cash, Due 12/2023)(C)


6,750



6,729



6,84310,436



10,471Cargo Transportation  5.2%AG Transportation Holdings, LLC  Term Debt (L + 10.0%, 13.3% Cash, Due 12/2020)(C)


13,000



13,000



12,967Chemicals, Plastics, and Rubber  4.4%Phoenix Aromas & Essential Oils, LLC  Term Debt (L + 9.5%, 11.5% Cash, Due 5/2024)(C)


10,000



10,000



9,838Vertellus Holdings LLC  Term Debt (L + 12.0%, 14.0% Cash, Due 10/2021)(C)


1,099



1,099



1,08511,099



10,923Diversified/Conglomerate Manufacturing  1.9%Tailwind Smith Cooper Intermediate Corporation  Term Debt (L + 9.0%, 11.0% Cash, Due
5/2027)(D)


5,000



4,756



4,700Diversified/Conglomerate Service  18.5%CHA Holdings, Inc.  Term Debt (L + 8.8%, 10.8% Cash, Due 4/2026)(D)(U)


3,000



2,947



3,030DigiCert Holdings, Inc.  Term Debt (L + 8.0%, 10.0% Cash, Due 10/2025)(D)(AA)


2,400



2,379



2,388DiscoverOrg, LLC  Term Debt (L + 8.5%, 10.5% Cash, Due 2/2027)(D)


3,303



3,275



3,287Drive Chassis Holdco, LLC  Term Debt (L + 8.3%, 10.3% Cash, Due 4/2026)(D)


5,000



4,760



4,700Gray Matter Systems, LLC  Term Debt (12.0% Cash, Due 11/2023)(C)(F)


11,100



11,100



10,989Keystone Acquisition Corp.  Term Debt (L + 9.3%, 11.3% Cash, Due 5/2025)(D)(U)


4,000



3,936



3,880LDiscovery, LLC  Term Debt (L + 10.0%, 12.0% Cash, Due 12/2023)(D)


5,000



4,858



4,938Prophet Brand Strategy  Delayed Draw Term Loan, $5,000 available (L + 9.5%, 11.5% Cash, Due
2/2025)(C)










Prophet Brand Strategy  Term Debt (L + 9.5%, 11.5% Cash, Due 2/2025)(C)


13,000



13,000



13,00046,255



46,212Healthcare, Education, and Childcare  1.1%Medical Solutions Holdings, Inc.  Term Debt (L + 8.3%, 10.3% Cash, Due 6/2025)(D)


3,000



2,964



2,850New Trident Holdcorp, Inc.  Term Debt (L + 10.0%, 12.1% Cash, Due 7/2020)(E)(H)(K)(U)


4,409



4,409



7,373



2,850Home and Office Furnishings, Housewares and Durable Consumer Products  3.9%Belnick, Inc.  Term Debt (11.0% Cash, Due 8/2023)(C)(F)


10,000



10,000



9,800Hotels, Motels, Inns, and Gaming  2.9%Vacation Rental Pros Property Management, LLC  Term Debt (L + 10.0%, 12.0% Cash, 3.0%
PIK, Due 6/2023)(C)


7,593



7,593



7,209Machinery  0.4%CPM Holdings, Inc.  Term Debt (L + 8.3%, 10.3% Cash, Due 11/2026)(D)


1,000



1,000



990Oil and Gas  11.9%Imperative Holdings Corporation  Term Debt (L + 10.3%, 12.3% Cash, Due 9/2022)(C)


30,000



30,000



29,625Retail Stores  1.2%United PF Holdings, LLC  Term Debt (L + 8.5%, 10.5% Cash, Due 6/2027)(D)


3,000



2,956



2,970Total Secured Second Lien Debt





$
154,454


$
148,630  THE ACCOMPANYING NOTES
ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  13




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(W)(Y)

Principal/Shares/Units(J)(X)


Cost


Fair ValueUnsecured Debt  1.6%Healthcare, education, and childcare  1.6%Edmentum Ultimate Holdings, LLC  Term Debt (10.0% PIK, Due 6/2020)(C)(F)

$
3,993


$
3,993


$
3,933Preferred Equity  3.3%Automobile  0.0%Meridian Rack & Pinion, Inc.(S) Preferred Stock(E)(G)


1,449


$
1,449


$
Buildings and Real Estate  0.5%GFRC 360, LLC  Preferred
Stock(E)(G)


1,000



1,025



1,273Diversified/Conglomerate Service  0.0%Frontier Financial Group Inc.  Preferred
Stock(E)(G)


766



500



Frontier Financial Group Inc.  Preferred Stock Warrant(E)(G)


169







500



Oil and Gas  2.1%FES Resources Holdings LLC  Preferred Equity Units(E)(G)


6,350



6,350



3,236Imperative Holdings Corporation  Preferred Equity Units(E)(G)


13,740



632



2,0306,982



5,266Telecommunications  0.7%B+T Group Acquisition, Inc.(S) 
Preferred Stock(E)(G)


5,503



1,799



NetFortris Corp.  Preferred
Stock(E)(G)


7,890,860



789



1,7342,588



1,734Total Preferred Equity





$
12,544


$
8,273Common Equity  8.6%Aerospace and Defense  1.3%Antenna Research Associates, Inc.  Common Equity Units(E)(G)


4,283


$
4,283


$
3,131Automobile 0.5%Sea Link International IRB, Inc. Common Equity Units(E)(G)


823,333



824



1,152Beverage, Food, and Tobacco  0.8%The Mochi Ice Cream Company  Common
Stock(E)(G)


450



450



1,365Triple H Food Processors, LLC  Common
Stock(E)(G)


250,000



250



650700



2,015Buildings and Real Estate  0.0%GFRC 360, LLC  Common Stock
Warrants(E)(G)


45.0
%






Cargo Transportation  0.9%AG Transportation Holdings, LLC  Member Profit Participation(E)(G)


18.0
%


1,000



1,511AG Transportation Holdings, LLC  Profit Participation Warrants(E)(G)


12.0
%


244



7471,244



2,258Chemicals, Plastics, and Rubber  0.2%Vertellus Holdings LLC  Common Stock
Units(E)(G)


879,121



3,018



525Healthcare, Education, and Childcare  1.8%Edmentum Ultimate Holdings, LLC  Common
Stock(E)(G)


21,429



2,636



GSM MidCo LLC  Common
Stock(E)(G)


767



767



777Leeds Novamark Capital I, L.P.  Limited Partnership Interest ($843 uncalled capital
commitment)(G)(L)(R)


3.5
%


2,152



4,0605,555



4,837Machinery  0.5%Arc Drilling Holdings LLC  Common
Stock(E)(G)


15,000



1,500



415Precision International, LLC  Membership Unit Warrant(E)(G)


33.3
%






7831,500



1,198Oil and Gas  0.1%FES Resources Holdings LLC  Common Equity
Units(E)(G)


6,233







Total Safety Holdings, LLC  Common
Equity(E)(G)


435



499



160499



160  THE ACCOMPANYING NOTES
ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  14




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(W)(Y)

Principal/Shares/Units(J)(X)


Cost


Fair ValuePersonal and Non-Durable Consumer Products
(Manufacturing Only)  0.1%Funko Acquisition Holdings, LLC(S) 
Common Units(G)(T)


12,180



59



170Telecommunications  0.0%B+T Group Acquisition, Inc.(S)  Common
Stock Warrant(E)(G)


1.5
%






NetFortris Corp. Common Stock
Warrant(E)(G)


1



1



1



Textiles and Leather  2.4%Targus Cayman HoldCo, Ltd.  Common
Stock(E)(G)


3,076,414



2,062



6,104Total Common Equity





$
19,745


$
21,550Total
Non-Control/Non-Affiliate Investments





$
361,272


$
345,876AFFILIATE INVESTMENTS(N)
14.2%Secured First Lien Debt  3.2%Diversified/Conglomerate Manufacturing  3.2%Edge Adhesives Holdings, Inc.(S)  Term
Debt (L + 10.5%, 12.5% Cash, Due 2/2022)(C)

$
6,200


$
6,200


$
6,045Edge Adhesives Holdings, Inc.(S)  Term
Debt (L + 11.8%, 13.8% Cash, Due 2/2022)(C)


2,000



2,000



1,9608,200



8,005Total Secured First Lien Debt





$
8,200


$
8,005Secured Second Lien Debt  10.0%Diversified Natural Resources, Precious Metals and Minerals  8.5%Lignetics, Inc.  Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)

$
6,000


$
6,000


$
5,940Lignetics, Inc.  Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)


8,000



8,000



7,920Lignetics, Inc.  Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)


3,300



3,300



3,267Lignetics, Inc.  Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C)


4,000



4,000



3,96021,300



21,087Personal and Non-Durable Consumer Products
(Manufacturing Only)  1.5%Canopy Safety Brands, LLC  Term Debt (L + 10.5%, 12.5% Cash, Due 7/2022)(C)


3,750



3,750



3,759Total Secured Second Lien Debt





$
25,050


$
24,846Preferred Equity  0.6%Diversified/Conglomerate Manufacturing  0.0%Edge Adhesives Holdings, Inc.(S) 
Preferred Stock(E)(G)


2,516


$
2,516


$
Diversified Natural Resources, Precious Metals and Minerals  0.3%Lignetics, Inc.  Preferred
Stock(E)(G)


40,000



800



947Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.3%Canopy Safety Brands, LLC  Preferred
Stock(E)(G)


500,000



500



634Total Preferred Equity





$
3,816


$
1,581Common Equity  0.4%Diversified Natural Resources, Precious Metals and Minerals  0.3%Lignetics, Inc.  Common
Stock(E)(G)


152,603


$
1,855


$
805Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.1%Canopy Safety Brands, LLC  Common
Stock(E)(G)


500,000







184Total Common Equity





$
1,855


$
989Total Affiliate Investments





$
38,921


$
35,421  THE ACCOMPANYING NOTES
ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  15




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(W)(Y)

Principal/Shares/Units(J)(X)


Cost


Fair ValueCONTROL INVESTMENTS(O) 
8.7%Secured First Lien Debt  2.8%Diversified/Conglomerate Manufacturing  2.2%LWO Acquisitions Company LLC  Term Debt (L + 7.5%, 10.0% Cash, Due 6/2021)(E)

$
6,000


$
6,000


$
5,218LWO Acquisitions Company LLC  Term Debt (Due 6/2021)(E)(P)


10,632



10,632



16,632



5,218Printing and Publishing  0.6%TNCP Intermediate HoldCo, LLC  Line of Credit, $500 available (8.0% Cash, Due 9/2021)(E)(F)


1,500



1,465



1,500Total Secured First Lien Debt





$
18,097


$
6,718Secured Second Lien Debt  3.2%Automobile 3.2%Defiance Integrated Technologies, Inc.  Term Debt (L + 9.5%, 11.5% Cash, Due 8/2023)(E)

$
8,065


$
8,065


$
8,065Unsecured Debt  0.0%Diversified/Conglomerate Manufacturing  0.0%LWO Acquisitions Company LLC  Term Debt (Due 6/2020)(E)(P)

$
95


$
95


$
Common Equity  2.7%Automobile 1.7%Defiance Integrated Technologies, Inc.  Common Stock(E)(G)


33,321


$
580


$
4,287Diversified/Conglomerate Manufacturing  0.0%LWO Acquisitions Company LLC  Common
Units(E)(G)


921,000



921



Machinery  0.9%PIC 360, LLC  Common Equity
Units(E)(G)


750



1



2,311Printing and Publishing  0.1%TNCP Intermediate HoldCo, LLC  Common Equity Units(E)(G)


790,000



500



197Total Common Equity





$
2,002


$
6,795Total Control Investments





$
28,259


$
21,578TOTAL INVESTMENTS(Z) 
161.6%





$
428,452


$
402,875  (A)
Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio
company. The majority of the securities listed, totaling $369.0 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5Borrowings in the accompanying Notes to Consolidated
Financial Statements.Under the 1940 Act, we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of
September 30, 2019, our investments in Leeds, Funko, and XMedius are considered non-qualifying assets under Section 55 of the 1940 Act. Such non-qualifying
assets represent 2.7% of total investments, at fair value, as of September 30, 2019. (B)
Unless indicated otherwise, all cash interest rates are indexed to LIBOR, which was 2.02% as of
September 30, 2019. If applicable, PIK interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or LIBOR plus a spread. Due
dates represent the contractual maturity date. (C)
Fair value was based on an internal yield analysis or on estimates of value submitted by ICE. (D)
Fair value was based on the indicative bid price on or near September 30, 2019, offered by the respective
syndication agents trading desk. (E)
Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the
portfolio companys securities in order of their relative priority in the capital structure. (F)
Debt security has a fixed interest rate. (G)
Security is non-income producing. (H)
Debt security is on non-accrual status. (I)
Reserved. (J)
Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned
within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase. (K)
In February 2019, New Trident Holdcorp, Inc. filed for Chapter 11 bankruptcy protection. (L)
There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the
entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured. (M)
Non-Control/Non-Affiliate
investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities. (N)
Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between
and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities. (O)
Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling
influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities. (P)
Debt security does not have a stated interest rate that is payable thereon. (Q)
Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to
occur imminently. (R)
Fair value was based on net asset value provided by the fund as a practical expedient. (S)
One of our affiliated funds, Gladstone Investment Corporation,
co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.  16




---

##### Table of Contents

(T)
Our investment in Funko was valued using Level 2 inputs within the ASC 820 fair value hierarchy. Our
common units in Funko are convertible to class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of
marketability. Funko, Inc. is traded on the Nasdaq Global Select Market under the trading symbol FNKO. Refer to Note 3Investments in the accompanying Notes to Consolidated Financial Statements for additional
information. (U)
The cash interest rate on this investment was indexed to 90-day LIBOR,
which was 2.09% as of September 30, 2019. (V)
The cash interest rate on this investment was indexed to PRIME, which was 5.00% as of September 30, 2019. (W)
Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the ASC 820 fair
value hierarchy. Refer to Note 3Investments in the accompanying Notes to Consolidated Financial Statements for additional information. (X)
Represents the principal balance for debt investments and the number of shares/units held for equity
investments. Warrants are represented as a percentage of ownership, as applicable. (Y)
Category percentages represent the fair value of each category and subcategory as a percentage of net assets as
of September 30, 2019. (Z)
Cumulative gross unrealized depreciation for federal income tax purposes is $55.6 million; cumulative
gross unrealized appreciation for federal income tax purposes is $19.8 million. Cumulative net unrealized depreciation is $35.8 million, based on a tax cost of $438.6 million. (AA)
Investment was exited subsequent to September 30, 2019. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  17




---

##### Table of Contents

GLADSTONE CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 2019 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED) NOTE 1. ORGANIZATION Gladstone Capital Corporation was
incorporated under the Maryland General Corporation Law on May 30, 2001 and completed an initial public offering on August 24, 2001. The terms the Company, we, our and us all refer to
Gladstone Capital Corporation and its consolidated subsidiaries. We are an externally managed, closed-end, non-diversified management investment company that has elected
to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act), and are applying the guidance of the Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic 946 Financial Services-Investment Companies (ASC 946). In addition, we have elected to be treated for U.S. federal income tax purposes as a regulated investment
company (RIC) under the Internal Revenue Code of 1986, as amended (the Code). We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States
(U.S.). Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established lower middle market companies (which we generally define as companies with annual earnings before interest,
taxes, depreciation and amortization (EBITDA) of $3 million to $15 million) in the U.S. that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness
and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow
over time to permit us to sell our equity investments for capital gains. Gladstone Business Loan, LLC (Business Loan), a wholly-owned
subsidiary of ours, was established on February 3, 2003, for the sole purpose of holding certain investments pledged as collateral to our line of credit. The financial statements of Business Loan are consolidated with those of Gladstone Capital
Corporation. We also have significant subsidiaries (as defined under Rule 1-02(w) of the U.S. Securities and Exchange Commissions (SEC) Regulation S-X)
whose financial statements are not consolidated with ours. Refer to Note 12  Unconsolidated Significant Subsidiaries for additional information regarding our unconsolidated significant subsidiaries. We are externally managed by Gladstone Management Corporation (the Adviser), an affiliate of ours and an SEC registered investment adviser,
pursuant to an investment advisory and management agreement (the Advisory Agreement). Administrative services are provided by Gladstone Administration, LLC (the Administrator), an affiliate of ours and the Adviser, pursuant
to an administration agreement (the Administration Agreement). Refer to Note 4Related Party Transactions for additional information regarding these arrangements. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unaudited Interim Financial Statements and Basis of Presentation We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial
information and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, we have not included in this
quarterly report all of the information and notes required by GAAP for annual financial statements. The accompanying Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation. In accordance with Article 6 of Regulation S-X, we do not consolidate portfolio company investments. Under the investment company
rules and regulations pursuant to the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, codified in ASC 946, we are precluded from consolidating any entity other than another investment company,
except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries. In our opinion, all adjustments, consisting solely of
normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations for the three months ended December 31, 2019 are not necessarily indicative of results
that ultimately may be achieved for the fiscal year ending September 30, 2020 or any future interim periods. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto
included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, as filed with the SEC on November 13, 2019 and amended on December 16, 2019. Use of Estimates Preparing financial statements requires
management to make estimates and assumptions that affect the amounts reported in our accompanying Consolidated Financial Statements and these Notes to Consolidated Financial Statements. Actual results may differ from those estimates.  18




---

##### Table of Contents

Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation in the Consolidated Financial Statements and the
accompanying Notes to Consolidated Financial Statements. Reclassifications did not impact net increase in net assets resulting from operations, total assets, total liabilities, or total net assets, Consolidated Statements of Changes in Net
Assets, or Consolidated Statements of Cash Flows classifications. Investment Valuation Policy Accounting Recognition We record our investments at fair
value in accordance with the FASB ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820) and the 1940 Act. Investment transactions are recorded on the trade date. Realized gains or losses are generally measured by
the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, and include investments charged off during the period, net of
recoveries. Unrealized appreciation or depreciation primarily reflects the change in investment fair values, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. Board Responsibility In accordance with the 1940 Act,
our Board of Directors has the ultimate responsibility for reviewing and determining, in good faith, the fair value of our investments for which market quotations are not readily available based on our investment valuation policy (which has been
approved by our Board of Directors) (the Policy). Such review occurs in three phases. First, prior to its quarterly meetings, the Board of Directors receives written valuation recommendations and supporting materials provided by
professionals of the Adviser and Administrator with oversight and direction from the chief valuation officer (the Valuation Team). Second, the Valuation Committee of our Board of Directors (comprised entirely of independent directors)
meets to review the valuation recommendations and supporting materials presented by the chief valuation officer. Third, after the Valuation Committee concludes its meeting, it and the chief valuation officer present the Valuation Committees
findings to the entire Board of Directors so that the full Board of Directors may review and determine in good faith the fair value of such investments in accordance with the Policy. There is no single standard for determining fair value (especially for privately-held businesses), as fair value depends upon the specific facts and
circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by the chief valuation officer, uses the Policy, and each quarter the Valuation Committee and Board of Directors review the Policy
to determine if changes thereto are advisable and whether the Valuation Team has applied the Policy consistently. Use of Third Party Valuation Firms The Valuation Team engages third party valuation firms to provide independent assessments of fair value of certain of our investments. ICE Data Pricing and Reference Data, LLC (ICE), a valuation specialist, generally provides estimates of fair value on our proprietary debt
investments. The Valuation Team generally assigns ICEs estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the applicable portfolio company. The Valuation Team corroborates ICEs
estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Teams estimate of value on a specific debt investment may significantly differ from ICEs. When this occurs, our Valuation Committee and
Board of Directors review whether the Valuation Team has followed the Policy and whether the Valuation Teams recommended fair value is reasonable in light of the Policy and other facts and circumstances before determining fair value. We may engage other independent valuation firms to provide earnings multiple ranges, as well as other information, and evaluate such information for
incorporation into the total enterprise value (TEV) of certain of our investments. Generally, at least once per year, we engage an independent valuation firm to value or review the valuation of each of our significant equity
investments, which includes providing the information noted above. The Valuation Team evaluates such information for incorporation into our TEV, including review of all inputs provided by the independent valuation firm. The Valuation Team then
makes a recommendation to our Valuation Committee and Board of Directors as to the fair value. Our Board of Directors reviews the recommended fair value, and whether it is reasonable in light of the Policy, and other relevant facts and
circumstances before determining fair value. Valuation Techniques In accordance with ASC 820, the Valuation Team uses the following techniques when valuing our investment portfolio:  

Total Enterprise Value  In determining the fair value using a TEV, the Valuation Team first
calculates the TEV of the portfolio company by incorporating some or all of the following factors: the portfolio companys ability to make payments and other specific portfolio company attributes; the earnings of the portfolio company (the
trailing or projected twelve month revenue or EBITDA); EBITDA obtained from our indexing methodology whereby the original transaction EBITDA at the time of our closing is indexed to a general subset of comparable disclosed transactions and EBITDA
from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries, and other pertinent factors. The Valuation Team generally reviews industry statistics and may use
outside experts when gathering this information. Once the TEV is determined for a portfolio company,  19




---

##### Table of Contents

the Valuation Team generally allocates the TEV to the portfolio companys securities based on the facts and circumstances of the securities, which typically results in the allocation of fair
value to securities based on the order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our equity investments and, in the circumstances where we have the ability to effectuate a sale of a
portfolio company, our debt investments. TEV is primarily calculated using EBITDA; however, TEV may also be calculated
using revenue multiples or a discounted cash flow (DCF) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate
adjustments for nonperformance and liquidity risks. Generally, the Valuation Team uses a DCF analysis to calculate TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio
company or for debt of credit impaired portfolio companies.  

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

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

Investments in Funds  For equity investments in other funds for which we cannot effectuate a sale of
the fund, the Valuation Team generally determines the fair value of our invested capital at the net asset value (NAV) provided by the fund. Any invested capital that is not yet reflected in the NAV provided by the fund is valued at par
value. The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying entity. In addition to the valuation techniques listed above, the Valuation Team may also consider other factors when determining the fair value of our investments,
including: the nature and realizable value of the collateral, including external parties guaranties, any relevant offers or letters of intent to acquire the portfolio company, timing of expected loan repayments, and the markets in which the
portfolio company operates. Fair value measurements of our investments may involve subjective judgments and estimates and due to the uncertainty inherent
in valuing these securities, the determinations of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be materially affected
if the determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities. Additionally, changes in the market environment and other events that may
occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other restrictions on
resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded. Refer to Note 3Investments for additional information regarding fair value measurements and our application of ASC 820.  20




---

##### Table of Contents

Revenue Recognition Interest Income Recognition Interest income, including
the amortization of premiums, acquisition costs and amendment fees, the accretion of original issue discounts (OID), and paid-in-kind (PIK)
interest, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due or if our qualitative assessment indicates that the debtor is unable to service its debt
or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan for financial reporting purposes until the borrower has demonstrated the ability and intent
to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis depending
upon managements judgment. Generally, non-accrual loans are restored to accrual status when past due principal and interest are paid and, in managements judgment, are likely to remain current, or
due to a restructuring such that the interest income is deemed to be collectible. As of December 31, 2019, loans to Meridian Rack & Pinion, Inc. (Meridian) were on non-accrual status
with an aggregate debt cost basis of approximately $4.1 million, or 1.0% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $0, or 0.0% of the fair value of all debt investments in our portfolio. As of
September 30, 2019, loans to Meridian and New Trident Holdcorp, Inc. were on non-accrual status with an aggregate debt cost basis of approximately $8.5 million, or 2.2% of the cost basis of all debt
investments in our portfolio, and an aggregate fair value of approximately $0.1 million, or 0.0% of the fair value of all debt investments in our portfolio. We currently hold, and we expect to hold in the future, some loans in our portfolio that contain OID or PIK provisions. We recognize OID for loans originally
issued at discounts and recognize the income over the life of the obligation based on an effective yield calculation. PIK interest, computed at the contractual rate specified in a loan agreement, is added to the principal balance of a loan and
recorded as income over the life of the obligation. Thus, the actual collection of PIK income may be deferred until the time of debt principal repayment. To maintain our ability to be taxed as a RIC, we may need to pay out both OID and PIK non-cash income amounts in the form of distributions, even though we have not yet collected the cash on either. As of
December 31, 2019 and September 30, 2019, we held six and ten OID loans, respectively, primarily from the syndicated loans in our portfolio. We recorded OID income of $0.2 million and $0.1 million for the three months ended
December 31, 2019 and 2018, respectively. The unamortized balance of OID investments as of December 31, 2019 and September 30, 2019 totaled $0.7 million and $0.8 million, respectively. As of each of December 31, 2019
and September 30, 2019, we had four investments which had a PIK interest component. We recorded PIK interest income of $0.3 million and $0.4 million during the three months ended December 31, 2019 and 2018 respectively. We
collected $0 in PIK interest in cash during each of the three months ended December 31, 2019 and 2018. Success Fee Income Recognition We record success fees as income when earned, which often occurs upon receipt of cash. Success fees are generally contractually due upon a change of control in
a portfolio company, typically resulting from an exit or sale, and are non-recurring. Dividend Income
Recognition We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we
have the option to collect such amounts in cash or other consideration. Restricted Cash and Cash Equivalents Restricted cash and cash equivalents are generally cash and cash equivalents held in escrow received as part of an investment exit. Restricted cash and cash
equivalents are carried at cost, which approximates fair value. Deferred Financing and Offering Costs Deferred financing and offering costs consist of costs incurred to obtain financing, including lender fees and legal fees. Certain costs associated with our
revolving line of credit are deferred and amortized using the straight-line method, which approximates the effective interest method, over the term of the revolving line of credit. Costs associated with the issuance of our notes payable are
presented as discounts to the principal amount of the notes payable and are amortized using the straight-line method, which approximates the effective interest method, over the term of the notes. Costs associated with the issuance of our mandatorily
redeemable preferred stock are presented as discounts to the liquidation value of the mandatorily redeemable preferred stock and are amortized using the straight-line method, which approximates the effective interest method, over the term of the
respective series of preferred stock. Refer to Note 5  BorrowingsandNote 6  Mandatorily Redeemable Preferred Stock for further discussion.  21




---

##### Table of Contents

Related Party Fees We are party to the Advisory Agreement with the Adviser, which is owned and controlled by our chairman and chief executive officer. In accordance with the
Advisory Agreement, we pay the Adviser fees as compensation for its services, consisting of a base management fee and an incentive fee. Additionally, we pay the Adviser a loan servicing fee as compensation for its services as servicer under the
terms of our Fifth Amended and Restated Credit Agreement with KeyBank National Association (KeyBank), as administrative agent, lead arranger and lender (our Credit Facility). These fees are accrued at the end of the quarter
when the services are performed and generally paid the following quarter. We are also party to the Administration Agreement with the Administrator, which
is owned and controlled by our chairman and chief executive officer, whereby we pay separately for administrative services. Refer to Note 4Related Party Transactions for additional information regarding these related party fees and
agreements. Recent Accounting Pronouncements In
August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value
(ASU 2018-13), which modifies the disclosure requirements in ASC 820. We are currently assessing the impact of ASU 2018-13 and do not anticipate a
material impact on our disclosures. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption
permitted.  22




---

##### Table of Contents

NOTE 3. INVESTMENTS Fair Value In accordance with ASC 820, the fair value of
each investment is determined to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between willing market participants on the measurement date. This fair value definition focuses on exit
price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value
measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.  

Level1  inputs to the valuation methodology are quoted prices (unadjusted) for
identical financial instruments in active markets;  

Level2 inputs to the valuation methodology include quoted prices for similar
financial instruments in active or inactive markets, and inputs that are observable for the financial instrument, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets
for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers; and  

Level3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants would use when pricing the financial instrument and can include the Valuation Teams assumptions based upon the best available
information. When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such
determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable
inputs (or components that are actively quoted and can be validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the
fair value measurement. Investments in funds measured using NAV as a practical expedient are not categorized within the fair value hierarchy. As of
December 31, 2019, all of our investments were valued using Level 3 inputs within the ASC 820 fair value hierarchy, except for our investment in Funko Acquisition Holdings, LLC (Funko), which was valued using Level 2
inputs, and our investment in Leeds Novamark Capital I, L.P. (Leeds), which was valued using NAV as a practical expedient. As of September 30, 2019, all of our investments were valued using Level 3 inputs within the ASC 820
fair value hierarchy, except for our investment in Funko, which was valued using Level 2 inputs, and our investment in Leeds, which was valued using NAV as a practical expedient. We transfer investments in and out of Level 1, 2, and 3 of the valuation hierarchy as of the beginning balance sheet date, based on changes in the use of
observable and unobservable inputs utilized to perform the valuation for the period. During the three months ended December 31, 2019 and 2018, there were no investments transferred into or out of Levels 1, 2 or 3 of the valuation hierarchy. As of December 31, 2019 and September 30, 2019, our investments, by security type, at fair value were categorized as follows within the ASC 820
fair value hierarchy:  Fair Value MeasurementsFair Value


Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)


SignificantOtherObservableInputs(Level 2)


SignificantUnobservableInputs(Level 3)As of December 31, 2019:Secured first lien debt

$
215,340


$



$



$
215,340Secured second lien debt


173,644











173,644Unsecured debt


4,049











4,049Preferred equity


9,474











9,474Common equity/equivalents


22,325
(A)






142
(B)


22,183Total Investments at December 31, 2019

$
424,832


$



$
142


$
424,690  23




---

##### Table of Contents

Fair Value MeasurementsFair Value


Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)


SignificantOtherObservableInputs(Level 2)


SignificantUnobservableInputs(Level 3)As of September 30, 2019:Secured first lien debt

$
178,213


$



$



$
178,213Secured second lien debt


181,541











181,541Unsecured debt


3,933











3,933Preferred equity


9,854











9,854Common equity/equivalents


25,274
(A)






170
(B)


25,104Total Investments at September 30, 2019

$
398,815


$



$
170


$
398,645  (A)
Excludes our investment in Leeds with a fair value of $4.2 million and $4.1 million as of
December 31, 2019 and September 30, 2019, respectively. Leeds was valued using NAV as a practical expedient. (B)
Fair value was determined based on the closing market price of shares of Funko, Inc. (our units in Funko can be
converted into common shares of Funko, Inc.) at the reporting date less a discount for lack of marketability as our investment was subject to certain restrictions. The following table presents our portfolio investments, valued using Level 3 inputs within the ASC 820 fair value hierarchy and carried at fair value as
of December 31, 2019 and September 30, 2019, by caption on our accompanying Consolidated Statements of Assets and Liabilities, and by security type:  Total Recurring Fair Value MeasurementsReported inConsolidated Statements of Assets and LiabilitiesUsing Significant Unobservable Inputs 
(Level 3)December 31, 2019


September 30, 2019Non-Control/Non-Affiliate
InvestmentsSecured first lien debt

$
199,821


$
163,490Secured second lien debt


140,686



148,630Unsecured debt


4,049



3,933Preferred equity


7,864



8,273Common equity/equivalents


17,070
(A)


17,320
(B)Total
Non-Control/Non-Affiliate Investments

$
369,490


$
341,646Affiliate InvestmentsSecured first lien debt

$
8,715


$
8,005Secured second lien debt


24,893



24,846Preferred equity


1,610



1,581Common equity/equivalents


863



989Total Affiliate Investments

$
36,081


$
35,421Control InvestmentsSecured first lien debt

$
6,804


$
6,718Secured second lien debt


8,065



8,065Common equity/equivalents


4,250



6,795Total Control Investments

$
19,119


$
21,578Total Investments at Fair Value Using Level 3 Inputs

$
424,690


$
398,645  (A)
Excludes our investments in Leeds and Funko with fair values of $4.2 million and $0.1 million,
respectively, as of December 31, 2019. Leeds was valued using NAV as a practical expedient, and Funko was valued using Level 2 inputs. (B)
Excludes our investments in Leeds and Funko with fair values of $4.1 million and $0.2 million,
respectively, as of September 30, 2019. Leeds was valued using NAV as a practical expedient, and Funko was valued using Level 2 inputs.  24




---

##### Table of Contents

In accordance with ASC 820, the following table provides quantitative information about our Level 3
fair value measurements of our investments as of December 31, 2019 and September 30, 2019. The table below is not intended to be all-inclusive, but rather provides information on the significant
Level 3 inputs as they relate to our fair value measurements. The weighted average calculations in the table below are based on the principal balances for all debt related calculations and on the cost basis for all equity related calculations
for the particular input.  Quantitative Information about Level 3 Fair Value MeasurementsFair Value as of






Range / Weighted Average as ofDecember 31,2019


September 30,2019


ValuationTechniques/Methodologies

UnobservableInput

December 31,
2019

September 30,2019Secured first lien debt(A)

$
196,443


$
171,383


Yield Analysis

Discount Rate

9.0% - 15.5%/11.6%

9.8% - 18.0%/12.4%18,897



6,830


TEV

EBITDA multiple

5.1x - 5.1x/5.1x

6.5x - 6.5x/6.5xEBITDA

$5,723 - $5,723/$5,723

$830 - $830/$830Revenue multiple

0.3x - 0.3x/0.3x

0.3x - 0.3x/0.3xRevenue

$6,596 - $19,291/$18,241

$6,663 - $18,978/$17,959Secured second lien debt


129,017



136,115


Yield Analysis

Discount Rate

11.1% - 15.1%/12.5%

11.5% - 16.8%/12.6%29,812



37,361


Market Quote

IBP

91.0% - 101.0%/96.2%

94.0% - 101.0%/97.3%14,815



8,065


TEV

EBITDA multiple

5.3x - 10.3x/7.6x

5.4x - 6.5x/5.8xEBITDA

$3,200 - $17,981/$9,935

$3,571 - $37,311/$15,498Unsecured debt


4,049



3,933


Yield Analysis

Discount Rate

12.7% - 12.7%/12.7%

12.2% - 12.2%/12.2%Preferred and common equity / equivalents(B)


31,657



34,958


TEV

EBITDA multiple

3.2x - 10.3x/6.1x

3.3x - 8.9x/6.4xEBITDA

$483 - $52,523/$14,800

$715 - $48,973/$14,853Revenue multiple

0.3x - 1.5x/0.8x

0.3x - 1.4x/0.8xRevenue

$949 - $60,323/$25,525

$1,033 - $61,584/$25,814Total Level 3 Investments, at Fair Value

$
424,690


$
398,645  (A)
Fair value as of December 31, 2019 includes one proprietary debt investment totaling $6.8 million,
which was valued using the expected payoff amount as the unobservable input. Fair value as of September 30, 2019 includes two proprietary debt investments totaling $15.5 million, which were valued using the expected payoff amount as the
unobservable input. (B)
Fair value as of December 31, 2019 excludes our investments in Leeds and Funko with fair values of
$4.2 million and $0.1 million, respectively, as of December 31, 2019. Fair value as of September 30, 2019 excludes our investments in Leeds and Funko with fair values of $4.1 million and $0.2 million, respectively, as
of September 30, 2019. Leeds was valued using NAV as a practical expedient and Funko was valued using Level 2 inputs as of both December 31, 2019 and September 30, 2019.  25




---

##### Table of Contents

Fair value measurements can be sensitive to changes in one or more of the valuation inputs. Changes in
discount rates, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase/(decrease) in market yields, discount rates, or an increase/(decrease)
in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a corresponding increase/(decrease), respectively, in the fair value of certain of our investments. Changes in Level 3 Fair Value Measurements of Investments The following tables provide the changes in fair value, broken out by security type, during the three months ended December 31, 2019 and 2018 for all
investments for which we determine fair value using unobservable (Level 3) inputs.  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Three months ended December 31, 2019

SecuredFirst LienDebt


SecuredSecondLien Debt


UnsecuredDebt


PreferredEquity


CommonEquity/Equivalents


TotalFair Value as of September 30, 2019

$
178,213


$
181,541


$
3,933


$
9,854


$
25,104


$
398,645Total gains (losses):Net realized loss(A)






(4,409
)














(4,409
)Net unrealized appreciation
(depreciation)(B)


(537
)


(132
)


14



(680
)


(2,921
)


(4,256
)Reversal of prior period net depreciation on realization(B)






4,307















4,307New investments, repayments and settlements:(C)Issuances/originations


39,403



3,058



102



300







42,863Settlements/repayments


(1,739
)


(10,721
)














(12,460
)Fair Value as of December 31, 2019

$
215,340


$
173,644


$
4,049


$
9,474


$
22,183


$
424,690Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Three months ended December 31, 2018

SecuredFirst LienDebt


SecuredSecondLien Debt


UnsecuredDebt


PreferredEquity


CommonEquity/Equivalents


TotalFair Value as of September 30, 2018

$
199,625


$
156,373


$
3,655


$
7,749


$
18,661


$
386,063Total gains (losses):Net realized loss(A)






(25,634
)






(1,219
)


(10
)


(26,863
)Net unrealized appreciation
(depreciation)(B)


(4,734
)


(1,892
)


(98
)


195



3,564



(2,965
)Reversal of prior period net depreciation on realization(B)






19,045







1,215



1



20,261New investments, repayments and settlements:(C)Issuances/originations


42,996



6,766



92



5,312



4,376



59,542Settlements/repayments


(5,236
)


(3,525
)














(8,761
)Net proceeds from sales














4



9



13Transfers






(1,350
)






1,350







Fair Value as of December 31, 2018

$
232,651


$
149,783


$
3,649


$
14,606


$
26,601


$
427,290  (A)
Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of
Operations for the corresponding period. (B)
Included in net unrealized appreciation (depreciation) on investments on our accompanyingConsolidated
Statements of Operations for the corresponding period. (C)
Includes increases in the cost basis of investments resulting from new portfolio investments, accretion of
discounts, PIK, and other non-cash disbursements to portfolio companies, as well as decreases in the cost basis of investments resulting from principal repayments or sales, the amortization of premiums and
acquisition costs and other cost-basis adjustments.  26




---

##### Table of Contents

Investment Activity Proprietary Investments As of December 31, 2019 and
September 30, 2019, we held 39 and 37 proprietary investments with an aggregate fair value of $388.1 million and $353.7 million, or 90.5% and 87.8% of the total portfolio at fair value, respectively. The following significant
proprietary investment transactions occurred during the three months ended December 31, 2019:  

In October 2019, we invested $14.0 million in Universal Survey Center, Inc. through secured first lien debt.  

In December 2019, we invested $24.0 million in Café Zupas through secured first lien debt. Syndicated Investments As of
December 31, 2019 and September 30, 2019, we held 12 and 16 syndicated investments with an aggregate fair value of $40.9 million and $49.2 million, or 9.5% and 12.2% of the total portfolio at fair value, respectively. The
following significant syndicated investment transactions occurred during the three months ended December 31, 2019:  

In October 2019, we invested an additional $3.0 million in Medical Solutions Holdings, Inc., an existing
portfolio company, through secured second lien debt.  

In October 2019, our investment in DigiCert Holdings, Inc. paid off at par for net proceeds of $2.4 million.  

In December 2019, our investment in LDiscovery, LLC paid off at par for net proceeds of $5.0 million.  

In December 2019, our investment in United PF Holdings, LLC paid off at par for net proceeds of
$3.1 million. In conjunction with the payoff, we received a prepayment fee of $0.1 million.  

In December 2019, we recorded a net realized loss of $4.4 million related to our investment in New Trident
Holdcorp, Inc. which filed for bankruptcy protection in February 2019. Investment Concentrations As of December 31, 2019, our investment portfolio consisted of investments in 51 portfolio companies located in 25 states in 18 different industries, with
an aggregate fair value of $429.0 million. The five largest investments at fair value as of December 31, 2019 totaled $136.3 million, or 31.8% of our total investment portfolio, as compared to the five largest investments at fair
value as of September 30, 2019 totaling $135.5 million, or 33.6% of our total investment portfolio. As of December 31, 2019 and September 30, 2019, our average investment by obligor was $8.9 million and $8.1 million at
cost, respectively. The following table outlines our investments by security type as of December 31, 2019 and September 30, 2019:  December 31, 2019


September 30, 2019Cost


Fair Value


Cost


Fair ValueSecured first lien debt

$
234,497



51.6
%

$
215,340



50.2
%

$
196,833



45.9
%

$
178,213



44.2
%Secured second lien debt


175,497



38.6



173,644



40.5



187,569



43.8



181,541



45.1Unsecured debt


4,190



0.9



4,049



0.9



4,088



1.0



3,933



1.0Total debt investments


414,184



91.1



393,033



91.6



388,490



90.7



363,687



90.3Preferred equity


16,660



3.7



9,474



2.2



16,360



3.8



9,854



2.4Common equity/equivalents


23,602



5.2



26,501



6.2



23,602



5.5



29,334



7.3Total equity investments


40,262



8.9



35,975



8.4



39,962



9.3



39,188



9.7Total Investments

$
454,446



100.0
%

$
429,008



100.0
%

$
428,452



100.0
%

$
402,875



100.0
%  27




---

##### Table of Contents

Our investments at fair value consisted of the following industry classifications as of December 31,
2019 and September 30, 2019:  December 31, 2019


September 30, 2019Industry Classification

FairValue


Percentage ofTotalInvestments


FairValue


Percentage ofTotalInvestmentsDiversified/Conglomerate Service

$
121,229



28.3
%

$
116,923



29.0
%Telecommunications


46,613



10.9



46,111



11.4Healthcare, Education, and Childcare


42,577



9.9



39,515



9.8Beverage, Food, and Tobacco


37,620



8.8



12,486



3.1Oil and Gas


33,884



7.9



35,051



8.7Diversified Natural Resources, Precious Metals, and Minerals


22,848



5.3



22,839



5.7Automobile


20,390



4.7



23,529



5.8Diversified/Conglomerate Manufacturing


18,694



4.3



17,923



4.4Cargo Transportation


15,286



3.6



15,225



3.8Aerospace and Defense


15,125



3.5



15,164



3.8Chemicals, Plastics, and Rubber


11,367



2.6



11,448



2.8Machinery


10,879



2.5



10,724



2.7Home and Office Furnishings, Housewares, and Durable Consumer Products


9,700



2.3



9,800



2.4Hotels, Motels, Inns, and Gaming


7,586



1.8



7,209



1.8Textiles and Leather


5,433



1.3



6,104



1.5Personal and Non-Durable Consumer Products


4,660



1.1



4,747



1.2Buildings and Real Estate


3,465



0.8



3,410



0.9Other, < 2.0%


1,652



0.4



4,667



1.2Total Investments

$
429,008



100.0
%

$
402,875



100.0
% Our investments at fair value were included in the following U.S. geographic regions and Canada as of December 31, 2019
and September 30, 2019:  December 31, 2019


September 30, 2019Location

FairValue


Percentage ofTotalInvestments


FairValue


Percentage ofTotalInvestmentsSouth

$
163,150



38.0
%

$
171,985



42.7
%West


154,274



36.0



118,078



29.3Midwest


56,036



13.1



56,149



13.9Northeast


49,052



11.4



49,914



12.4Canada


6,496



1.5



6,749



1.7Total Investments

$
429,008



100.0
%

$
402,875



100.0
% The geographic composition indicates the location of the headquarters for our portfolio companies. A portfolio company may
have additional locations in other geographic regions. Investment Principal Repayments The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments,
as of December 31, 2019:  AmountFor the remaining nine months ending September 30:

2020

$
18,765For the fiscal years ending September 30:

2021


66,0362022


82,0802023


77,3172024


70,217Thereafter


100,611Total contractual repayments

$
415,026Adjustments to cost basis of debt investments


(842
)Investments in equity securities


40,262Investments held as of December 31, 2019 at cost:

$
454,446 Receivables from Portfolio Companies Receivables from portfolio companies represent non-recurring costs incurred on behalf of such portfolio companies and
are included in other assets on our accompanying Consolidated Statements of Assets and Liabilities. We generally maintain an allowance for uncollectible receivables from portfolio companies when the receivable balance becomes 90 days or more past
due or if it is determined,  28




---

##### Table of Contents

based upon managements judgment, that the portfolio company is unable to pay its obligations. We write-off accounts receivable when we have exhausted
collection efforts and have deemed the receivables uncollectible. As of December 31, 2019 and September 30, 2019, we had gross receivables from portfolio companies of $0.6 million and $0.7 million, respectively. The allowance for
uncollectible receivables was $15 thousand and $16 thousand as of December 31, 2019 and September 30, 2019, respectively. NOTE 4.
RELATED PARTY TRANSACTIONS Transactions with the Adviser We have been externally managed by the Adviser pursuant to the Advisory Agreement since October 1, 2004 pursuant to which we pay the Adviser a base
management fee and an incentive fee for its services. On July 9, 2019, our Board of Directors, including a majority of the directors who are not parties to the Advisory Agreement or interested persons of such party, unanimously approved the
renewal of the Advisory Agreement through August 31, 2020. We also pay the Adviser a loan servicing fee for its role of servicer pursuant to our
Credit Facility. The entire loan servicing fee paid to the Adviser by Business Loan is non-contractually, unconditionally and irrevocably credited against the base management fee otherwise payable to the
Adviser, since Business Loan is a consolidated subsidiary of ours, and overall, the base management fee (including any loan servicing fee) cannot exceed 1.75% of total assets (including investments made with proceeds of borrowings, less any
uninvested cash or cash equivalents resulting from borrowings) during any given fiscal year pursuant to the Advisory Agreement. Two of our executive
officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer), serve as directors and executive officers of the Adviser, which is 100% indirectly owned and controlled by
Mr. Gladstone. Robert Marcotte (our president) also serves as an executive managing director of the Adviser. The following table summarizes the base
management fee, incentive fee, and loan servicing fee and associated non-contractual, unconditional and irrevocable credits reflected in our accompanying Consolidated Statements of Operations:  Three Months EndedDecember 31,2019


2018Average total assets subject to base management
fee(A)

$
423,314


$
417,829Multiplied by prorated annual base management fee of 1.75%


0.4375
%


0.4375
%Base management fee(B)

$
1,852


$
1,828Portfolio company fee credit


(352
)


(544
)Senior syndicated loan fee credit


(121
)


(83
)Net Base Management Fee

$
1,379


$
1,201Loan servicing fee(B)


1,403



1,262Credit to base management fee - loan servicing
fee(B)


(1,403
)


(1,262
)Net Loan Servicing Fee

$



$
Incentive fee(B)


1,394



1,360Incentive fee credit


(840
)


(547
)Net Incentive Fee

$
554


$
813Portfolio company fee credit


(352
)


(544
)Senior syndicated loan fee credit


(121
)


(83
)Incentive fee credit


(840
)


(547
)Credits to Fees From Adviser -
other(B)

$
(1,313
)

$
(1,174
)  (A)
Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets,
including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the two most recently completed quarters within the respective years and adjusted appropriately for
any share issuances or repurchases during the period. (B)
Reflected as a line item on our accompanying Consolidated Statements of Operations. Base Management Fee The base
management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 1.75%, computed on the basis of the value of our average total assets at the end of the two most recently-completed quarters
(inclusive of the current quarter), which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings and adjusted appropriately for any share issuances or
repurchases during the period.  29




---

##### Table of Contents

Additionally, pursuant to the requirements of the 1940 Act, the Adviser makes available significant
managerial assistance to our portfolio companies. The Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than managerial assistance. Such services may include:
(i) assistance obtaining, sourcing or structuring credit facilities, long term loans or additional equity from unaffiliated third parties; (ii) negotiating important contractual financial relationships; (iii) consulting services
regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties; and (iv) taking a primary role in interviewing, vetting and negotiating
employment contracts with candidates in connection with adding and retaining key portfolio company management team members. The Adviser non-contractually, unconditionally, and irrevocably credits 100% of any
fees for such services against the base management fee that we would otherwise be required to pay to the Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees, totaling $15 thousand and
$19 thousand for the three months ended December 31, 2019 and 2018, respectively, was retained by the Adviser in the form of reimbursement, at cost, for tasks completed by personnel of the Adviser primarily for the valuation of portfolio
companies. Our Board of Directors accepted a non-contractual, unconditional, and irrevocable credit from the
Adviser to reduce the annual base management fee on syndicated loan participations to 0.5%, to the extent that proceeds resulting from borrowings were used to purchase such syndicated loan participations, for each of the three months ended
December 31, 2019 and 2018. Loan Servicing Fee The Adviser also services the loans held by Business Loan (the borrower under the Credit Facility), in return for which the Adviser receives a 1.5% annual fee
payable monthly based on the aggregate outstanding balance of loans pledged under our Credit Facility. As discussed in the notes to the table above, we treat payment of the loan servicing fee pursuant to the Credit Facility as a pre-payment of the base management fee under the Advisory Agreement. Accordingly, these loan servicing fees are 100% non-contractually, unconditionally and irrevocably
credited back to us by the Adviser. Incentive Fee The incentive fee consists of two parts: an income-based incentive fee and a capital gains-based incentive fee. The income-based incentive fee rewards the
Adviser if our quarterly net investment income (before giving effect to any incentive fee) exceeds 1.75% of our net assets, which we define as total assets less indebtedness and before taking into account any incentive fees payable or contractually
due but not payable during the period, at the end of the immediately preceding calendar quarter, adjusted appropriately for any share issuances or repurchases during the period (the hurdle rate). The income-based incentive fee with
respect to our pre-incentive fee net investment income is generally payable quarterly to the Adviser and is computed as follows:  

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

100.0% of our pre-incentive fee net investment income with respect to
that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% of our net assets, adjusted appropriately for any share issuances or repurchases
during the period, in any calendar quarter; and  

20.0% of the amount of our pre-incentive fee net investment income, if
any, that exceeds 2.1875% of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter. The second part of the incentive fee is a capital gains-based incentive fee that is determined and payable in arrears as of the end of each fiscal year (or
upon termination of the Advisory Agreement, as of the termination date) and equals 20.0% of our net realized capital gains (as defined herein) as of the end of the fiscal year. In determining the capital gains-based incentive fee payable
to the Adviser, we calculate net realized capital gains at the end of each applicable year by subtracting the sum of our cumulative aggregate realized capital losses and our entire portfolios aggregate unrealized capital
depreciation from our cumulative aggregate realized capital gains. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original
cost of such investment since inception. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such investment since inception. The
entire portfolios aggregate unrealized capital depreciation, if any, equals the sum of the difference between the valuation of each investment as of the applicable calculation date and the original cost of such investment. At the end of the
applicable fiscal year, the amount of capital gains that serves as the basis for our calculation of the capital gains-based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less
the entire portfolios aggregate unrealized capital depreciation, if any. If this number is positive at the end of such fiscal year, then the capital gains-based incentive fee for such year equals 20.0% of such amount, less the aggregate amount
of any capital gains-based incentive fees paid in respect of our portfolio in all prior years. No capital gains-based incentive fee has been recorded or paid since our inception through December 31, 2019, as cumulative unrealized capital
depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses. In accordance with GAAP, a capital gains-based
incentive fee accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation and depreciation. If such amount is positive at the end of a period, then GAAP requires us
to record a capital gains-based incentive fee equal to 20.0% of such amount, less the aggregate amount of actual capital gains-based incentive fees paid in all prior years. If such amount is negative, then there is no accrual for such period. GAAP  30




---

##### Table of Contents

requires that the capital gains-based incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains-based incentive fee would be
payable if such unrealized capital appreciation were realized. There can be no assurance that such unrealized capital appreciation will be realized in the future. No GAAP accrual for a capital gains-based incentive fee has been recorded from our
inception through December 31, 2019. Our Board of Directors accepted non-contractual, unconditional and
irrevocable credits from the Adviser to reduce the income-based incentive fee to the extent net investment income did not 100.0% cover distributions to common stockholders for the three months ended December 31, 2019 and 2018. Transactions with the Administrator We have entered into
the Administration Agreement with the Administrator to provide administrative services. We reimburse the Administrator pursuant to the Administration Agreement for the portion of expenses the Administrator incurs while performing services for us.
The Administrators expenses are primarily rent and the salaries, benefits and expenses of the Administrators employees, including: our chief financial officer and treasurer, chief compliance officer, chief valuation officer, and general
counsel and secretary (who also serves as the Administrators president, general counsel and secretary) and their respective staffs. Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee
Brubaker (our vice chairman and chief operating officer) serve as members of the board of managers and executive officers of the Administrator, which is 100% indirectly owned and controlled by Mr. Gladstone. Our allocable portion of the Administrators expenses is generally derived by multiplying the Administrators total expenses by the approximate
percentage of time during the current quarter the Administrators employees performed services for us in relation to their time spent performing services for all companies serviced by the Administrator. On July 9, 2019, our Board of
Directors, including a majority of the directors who are not parties to the Administration Agreement or interested persons of either party, approved the renewal of the Administration Agreement through August 31, 2020. Other Transactions Gladstone Securities, LLC
(Gladstone Securities), a privately-held broker-dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation, which is 100% indirectly owned and controlled by
Mr. Gladstone, our chairman and chief executive officer, has provided other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which Gladstone Securities receives a fee. Any such fees
paid by portfolio companies to Gladstone Securities do not impact the fees we pay to the Adviser or the non-contractual, unconditional and irrevocable credits against the base management fee or incentive fee.
Gladstone Securities received fees from portfolio companies totaling $0.3 million and $0.5 million during the three months ended December 31, 2019 and 2018, respectively. Related Party Fees Due Amounts due to related parties on
our accompanying Consolidated Statements of Assets and Liabilities were as follows:  December 31, 2019


September 30, 2019Base management fee due to (from) Adviser

$
(22
)

$
61Loan servicing fee due to Adviser


338



305Incentive fee due to Adviser


554



1,086Total fees due to Adviser


870



1,452Fee due to Administrator


470



366Total Related Party Fees Due

$
1,340


$
1,818 In addition to the above fees, other operating expenses due to the Adviser as of December 31, 2019 and September 30,
2019, totaled $60 thousand and $32 thousand, respectively. In addition, net expenses payable to Gladstone Investment Corporation (for reimbursement purposes), which includes certain co-investment
expenses, totaled $66 thousand and $0 as of December 31, 2019 and September 30, 2019, respectively. These amounts are generally settled in the quarter subsequent to being incurred and are included in other liabilities on the
accompanying Consolidated Statements of Assets and Liabilitiesas of December 31, 2019 and September 30, 2019.  31




---

##### Table of Contents

NOTE 5. BORROWINGS Revolving Credit Facility On July 10, 2019, we,
through Business Loan, entered into Amendment No. 5 to our Credit Facility with KeyBank, which (i) modified the covenants to reduce our minimum asset coverage with respect to senior securities representing indebtedness from 200% to 150%
(or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), (ii) amended the excess concentration limits definition to decrease the limit for
non-first lien loans from 60% to 50% under certain circumstances and (iii) amended the distributions covenant to allow a distribution to be applied towards the redemption of our 6.00% Series 2024 Term
Preferred Stock, par value $0.001 per share (Series 2024 Term Preferred Stock). On March 9, 2018, we, through Business Loan, entered
into Amendment No. 4 to our Credit Facility with KeyBank, which increased the commitment amount from $170.0 million to $190.0 million, extended the revolving period end date by approximately two years to January 15, 2021,
decreased the marginal interest rate added to 30-day LIBOR from 3.25% to 2.85% per annum, and changed the unused commitment fee from 0.50% of the total unused commitment amount to 0.50% when the average unused
commitment amount for the reporting period is less than or equal to 50%, 0.75% when the average unused commitment amount for the reporting period is greater than 50% but less than or equal to 65%, and 1.00% when the average unused commitment amount
for the reporting period is greater than 65%. If our Credit Facility is not renewed or extended by January 15, 2021, all principal and interest will be due and payable on April 15, 2022 (15 months after the revolving period end date).
Subject to certain terms and conditions, our Credit Facility may be expanded up to a total of $265.0 million through additional commitments of new or existing lenders. We incurred fees of approximately $1.2 million in connection with this
amendment, which are being amortized through our Credit Facilitys revolving period end date of January 15, 2021. The following tables
summarize noteworthy information related to our Credit Facility:  December 31, 2019


September 30, 2019Commitment amount

$
190,000


$
190,000Borrowings outstanding, at cost


90,800



66,900Availability(A)


77,825



101,725For the Three Months EndedDecember 31,2019


2018Weighted average borrowings outstanding, at cost

$
88,160


$
88,911Weighted average interest rate(B)


5.4
%


6.1
%Commitment (unused) fees incurred

$
190


$
182  (A)
Available borrowings are subject to various constraints imposed under our Credit Facility, based on the
aggregate loan balance pledged by Business Loan, which varies as loans are added and repaid, regardless of whether such repayments are prepayments or made as contractually required. (B)
Includes unused commitment fees and excludes the impact of deferred financing fees. Our Credit Facility also requires that any interest or principal payments on pledged loans be remitted directly by the borrower into a lockbox account with
KeyBank. KeyBank is also the trustee of the account and generally remits the collected funds to us once each month. Amounts collected in the lockbox account with KeyBank are presented as Due from administrative agent on the accompanying
Consolidated Statement of Assets and Liabilities as of December 31, 2019 and September 30, 2019. Our Credit Facility contains covenants
that require Business Loan to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions), and restrict material changes to our credit and
collection policies without the lenders consent. Our Credit Facility also generally limits distributions to our stockholders on a fiscal year basis to the sum of our net investment income, net capital gains and amounts elected to have been
paid during the prior year in accordance with Section 855(a) of the Code. Business Loan is also subject to certain limitations on the type of loan investments it can apply as collateral towards the borrowing base to receive additional borrowing
availability under our Credit Facility, including restrictions on geographic concentrations, sector concentrations, loan size, payment frequency and status, average life and lien property. Our Credit Facility further requires Business Loan to comply
with other financial and operational covenants, which obligate Business Loan to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of 25 obligors required in the borrowing base. Additionally, we are subject to a performance guaranty that requires us to maintain (i) a minimum net worth (defined in our Credit Facility to include
our mandatorily redeemable preferred stock) of $205.0 million plus 50.0% of all equity and subordinated debt raised after May 1, 2015 less 50% of any equity and subordinated debt retired or redeemed after May 1, 2015, which equates to
$267.3 million as of December 31, 2019, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as
modified by Section 61 of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.  32




---

##### Table of Contents

As of December 31, 2019, and as defined in the performance guaranty of our Credit Facility, we had a
net worth of $343.5 million, asset coverage on our senior securities representing indebtedness of 231.1%, calculated in accordance with the requirements of Section 18 and 61 of the 1940 Act, and an active status as a BDC and
RIC. In addition, we had 34 obligors in our Credit Facilitys borrowing base as of December 31, 2019. As of December 31, 2019, we were in compliance with all of our Credit Facility covenants. Fair Value We elected to apply the fair value option of
ASC 825, Financial Instruments, specifically for the Credit Facility, which was consistent with our application of ASC 820 to our investments. Generally, the fair value of our Credit Facility is determined using a yield analysis
which includes a DCF calculation and the assumptions that the Valuation Team believes market participants would use, including the estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar
securities as of the measurement date. As of December 31, 2019 and September 30, 2019, the discount rate used to determine the fair value of our Credit Facility was 30-day LIBOR, plus 2.65% per
annum, plus a 0.75% unused commitment fee. Generally, an increase or decrease in the discount rate used in the DCF calculation may result in a corresponding decrease or increase, respectively, in the fair value of our Credit Facility. As of
December 31, 2019 and September 30, 2019, our Credit Facility was valued using Level 3 inputs and any changes in its fair value are recorded in net unrealized depreciation (appreciation) of other on our accompanying Consolidated
Statements of Operations. The following tables present our Credit Facility carried at fair value as of December 31, 2019 and September 30,
2019, on our accompanying Consolidated Statements of Assets and Liabilities for Level 3 of the hierarchy established by ASC 820 and the changes in fair value of our Credit Facility during the three months ended December 31, 2019 and
2018:  Total Recurring Fair Value Measurement Reported inConsolidated Statements of Assets and LiabilitiesUsingSignificant Unobservable Inputs (Level 3)December 31, 2019


September 30, 2019Credit Facility

$
90,984


$
67,067Fair Value Measurements Using Significant Unobservable Data Inputs (Level 3)Three Months EndedDecember 31,2019


2018Fair value as of September 30, 2019 and 2018, respectively

$
67,067


$
110,000Borrowings


84,300



59,000Repayments


(60,400
)


(66,800
)Net unrealized appreciation(A)


17



Fair Value as of December 31, 2019 and 2018, respectively

$
90,984


$
102,200  (A)
Included in net unrealized appreciation (depreciation) of other on our accompanying Consolidated Statements
of Operations for the three months ended December 31, 2019 and 2018. The fair value of the collateral under our Credit
Facility totaled approximately $385.3 million and $369.0 million as of December 31, 2019 and September 30, 2019, respectively. Notes Payable In October 2019, we completed a public
debt offering of $38.8 million aggregate principal amount of 5.375% Notes due 2024 (the 2024 Notes), inclusive of the overallotment option exercised by the underwriters, for net proceeds of approximately $37.5 million after
deducting underwriting discounts, commissions and offering expenses borne by us. In November 2018, we completed a public debt offering of
$57.5 million aggregate principal amount of 6.125% Notes due 2023 (the 2023 Notes), inclusive of the overallotment option exercised by the underwriters, for net proceeds of $55.4 million after deducting underwriting discounts,
commissions and offering expenses borne by us. The 2024 and 2023 Notes are traded under the ticker symbols GLADL and GLADD,
respectively, on the Nasdaq Global Select Market (Nasdaq). The 2024 Notes and 2023 Notes will mature on November 1, 2024 and November 1, 2023, respectively, and may be redeemed in whole or in part at any time or from time to
time at the Companys option on or after November 1, 2021 and November 1, 2020, respectively. The 2024 Notes and 2023 Notes bear interest at a rate of 5.375% and 6.125% per year, respectively, payable quarterly on February 1,
May 1, August 1, and November 1 of each year (which equates to approximately $5.6 million per year). The 2024 Notes and 2023 Notes are recorded at the principal amount, less discounts and offering costs, on our Consolidated
Statements of Assets and Liabilities.  33




---

##### Table of Contents

The indenture relating to the 2024 Notes and 2023 Notes contains certain covenants, including (i) an
inability to incur additional debt or issue additional debt or preferred securities unless the Companys asset coverage meets the threshold specified in the 1940 Act after such borrowing, (ii) an inability to declare any dividend or
distribution (except a dividend payable in our stock) on a class of our capital stock or to purchase shares of our capital stock unless the Companys asset coverage meets the threshold specified in the 1940 Act at the time of (and giving effect
to) such declaration or purchase, and (iii) if, at any time, we are not subject to the reporting requirements of the Exchange Act, we will provide the holders of the 2024 Notes and 2023 Notes and the trustee with audited annual consolidated
financial statements and unaudited interim consolidated financial statements. The fair value, based on the last quoted closing price, of the 2023 Notes
as of December 31, 2019 and September 30, 2019 was $59.7 million and $60.1 million, respectively. The fair value, based on the last quoted closing price, of the 2024 Notes as of December 31, 2019 was $39.9 million. We
consider the trading price of the 2024 Notes and 2023 Notes to be a Level 1 input within the ASC 820 hierarchy. NOTE 6. MANDATORILY REDEEMABLE
PREFERRED STOCK In September 2017, we completed a public offering of approximately 2.1 million shares of our Series 2024 Term Preferred Stock at
a public offering price of $25.00 per share. Gross proceeds totaled $51.8 million and net proceeds, after deducting underwriting discounts, commissions and offering expenses borne by us, were approximately $49.8 million. We incurred
approximately $1.9 million in total underwriting discounts and offering costs related to the issuance of the Series 2024 Term Preferred Stock, which were recorded as discounts to the liquidation value on our accompanying Consolidated
Statements of Assets and Liabilities and were previously amortized from issuance through September 30, 2024, the mandatory redemption date. The
shares of our Series 2024 Term Preferred Stock were traded under the ticker symbol GLADN on Nasdaq as of September 30, 2019. The asset coverage on our senior securities that are stock as of September 30, 2019 was
238.5%, calculated in accordance with Sections 18 and 61 of the 1940 Act. On October 2, 2019, we voluntarily redeemed all 2,070,000 outstanding
shares of our Series 2024 Term Preferred Stock at a redemption price of $25.00 per share which represents the liquidation preference per share, plus accrued and unpaid dividends through October 1, 2019 in the amount of $0.004166 per share, for
a total payment per share of $25.004166 and an aggregate redemption price of approximately $51.8 million. In connection with the voluntary redemption of our Series 2024 Term Preferred Stock, we incurred a loss on extinguishment of debt of
$1.4 million, which has been reflected in Realized loss on other in our accompanyingConsolidated Statement of Operations and which is primarily comprised of the unamortized deferred issuance costs at the time of redemption. We paid the following monthly dividends on our Series 2024 Term Preferred Stock for the three months ended December 31, 2018:  Fiscal Year

Declaration Date


Record Date


Payment Date


Dividend per Shareof Series 2024 TermPreferred Stock2019


October 9, 2018



October 19, 2018



October 31, 2018


$
0.125October 9, 2018



November 20, 2018



November 30, 2018



0.125October 9, 2018



December 20, 2018



December 31, 2018



0.125Three Months Ended December 31, 2018:


$
0.375 The federal income tax characteristics of dividends paid to our preferred stockholders generally constitute ordinary income to
the extent of our current and accumulated earnings and profits and is reported after the end of the calendar year based on tax information for the full fiscal year. Estimates of tax characterization made on a quarterly basis may not be
representative of the actual tax characterization of dividends for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date. The tax characterization of dividends paid to our preferred stockholders during the
calendar years ended December 31, 2019 and 2018 was 100% from ordinary income. In accordance with ASC 480, Distinguishing Liabilities from
Equity, mandatorily redeemable financial instruments should be classified as liabilities in the balance sheet. Our mandatorily redeemable preferred stock was recorded at the liquidation preference, less discounts, on our accompanyingConsolidated Statements of Assets and Liabilities as of September 30, 2019. The related dividend payments to our mandatorily redeemable preferred stockholders are treated as dividend expense on our Consolidated Statements of
Operations as of the ex-dividend date. The fair value, based on the last quoted closing price, for our Series
2024 Term Preferred Stock as of September 30, 2019 was $51.8 million. We consider the trading price of our mandatorily redeemable preferred stock to be a Level 1 input within the fair value hierarchy. NOTE 7. REGISTRATION STATEMENT AND COMMON EQUITY OFFERINGS Our shelf registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of
common stock, preferred stock, subscription rights, debt securities and warrants to purchase common stock or preferred stock. As of December 31, 2019, we had the ability to issue up to an additional $236.7 million in securities under the
registration statement.  34




---

##### Table of Contents

Common Stock Offerings In February 2019, we entered into an equity distribution agreement with Jefferies LLC (the Jefferies Sales Agreement) under which we have the
ability to issue and sell, from time to time, up to an aggregate offering price of $50.0 million shares of our common stock. During the three months ended December 31, 2019, we sold 705,031 shares of our common stock under the Jefferies
Sales Agreement, at a weighted-average price of $10.37 per share and raised $7.3 million of gross proceeds. Net proceeds, after deducting commissions and offering costs borne by us, were approximately $7.2 million. As of
December 31, 2019, we had a remaining capacity to sell up to an additional $25.5 million of our common stock under the Jefferies Sales Agreement. NOTE 8. NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER WEIGHTED AVERAGE COMMON SHARE The following table sets forth the computation of basic and diluted net increase in net assets resulting from operations per weighted average common share for
the three months ended December 31, 2019 and 2018:  Three Months EndedDecember 31,2019


2018Numerator, basic and diluted net increase (decrease) in net assets resulting from
operations

$
698


$
(3,708
)Denominator, basic and diluted weighted average common shares


30,513,530



28,504,715Basic and diluted net increase (decrease) in net assets resulting from operations per weighted
average common share

$
0.02


$
(0.13
) NOTE 9. DISTRIBUTIONS TO COMMON STOCKHOLDERS To qualify to be taxed as a RIC under Subchapter M of the Code, we must generally distribute to our stockholders, for each taxable year, at least 90% of our
taxable ordinary income plus the excess of our net short-term capital gains over net long-term capital losses (Investment Company Taxable Income). The amount to be paid out as distributions to our stockholders is determined by our Board
of Directors quarterly and is based on managements estimate of Investment Company Taxable Income. Based on that estimate, our Board of Directors declares three monthly distributions to common stockholders each quarter. The federal income tax characteristics of all distributions will be reported to stockholders on the IRS Form 1099 after the end of each calendar year. For
calendar year ended December 31, 2019, 97.4% of distributions to common stockholders were deemed to be paid from ordinary income and 2.6% of distributions to common stockholders were deemed to be a return of capital for 1099 stockholder
reporting purposes. For the calendar year ended December 31, 2018, 100% of distributions to common stockholders were deemed to be paid from ordinary income for 1099 stockholder reporting purposes. We paid the following monthly distributions to common stockholders for the three months ended December 31, 2019 and 2018:  Fiscal Year

DeclarationDate

Record Date

Payment Date

Distributionper CommonShare2020

October 8, 2019

October 22, 2019

October 31, 2019

$
0.07October 8, 2019

November 19, 2019

November 29, 2019


0.07October 8, 2019

December 19, 2019

December 31, 2019


0.07Three Months Ended December 31, 2019:

$
0.212019

October 9, 2018

October 19, 2018

October 31, 2018

$
0.07October 9, 2018

November 20, 2018

November 30, 2018


0.07October 9, 2018

December 20, 2018

December 31, 2018


0.07Three Months Ended December 31, 2018:

$
0.21 Aggregate distributions declared and paid to our common stockholders were approximately $6.4 million and
$6.0 million for the three months ended December 31, 2019 and 2018, respectively, and were declared based on estimates of Investment Company Taxable Income for the respective fiscal years. For the fiscal year ended September 30, 2019,
distributions declared and paid exceeded taxable income available for common distributions resulting in a partial return of capital of approximately $0.7 million.  35




---

##### Table of Contents

For the three months ended December 31, 2019 and the fiscal year ended September 30, 2019, we
recorded the following adjustments for book-tax differences to reflect tax character. Results of operations, total net assets, and cash flows were not affected by these adjustments.  Three Months EndedDecember 31, 2019


Year EndedSeptember 30, 2019Undistributed net investment income

$
(89
)

$
355Accumulated net realized losses


1,496



1,553Capital in excess of par value


(1,407
)


(1,908
) NOTE 10. COMMITMENTS AND CONTINGENCIES Legal Proceedings We are party to certain legal
proceedings incidental to the normal course of our business. We are required to establish reserves for litigation matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both
probable and estimable, we do not establish reserves. Based on current knowledge, we do not believe that loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have a material adverse effect on our
financial condition, results of operations or cash flows. Additionally, based on our current knowledge, we do not believe such loss contingencies are both probable and estimable and therefore, as of December 31, 2019 and September 30,
2019, we had no established reserves for such loss contingencies. Escrow Holdbacks From time to time, we enter into arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used
to satisfy potential obligations, as stipulated in the sales agreements. We record escrow amounts in Restricted cash and cash equivalents, if received in cash but subject to potential obligations or other contractual restrictions, or as escrow
receivables in Other assets, net, if not yet received in cash, on our accompanying Consolidated Statements of Assets and Liabilities. We establish reserves and holdbacks against escrow amounts if we determine that it is probable and estimable that a
portion of the escrow amounts will not ultimately be released or received at the end of the escrow period. There were no aggregate reserves recorded against the escrow amounts as of December 31, 2019 and September 30, 2019. Financial Commitments and Obligations We have lines of
credit, delayed draw term loans, and an uncalled capital commitment with certain of our portfolio companies that have not been fully drawn. Since these commitments have expiration dates and we expect many will never be fully drawn, the total
commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused lines of credit, the unused delayed draw term loans and the uncalled capital commitment as of December 31, 2019 and
September 30, 2019 to be immaterial. The following table summarizes the amounts of our unused lines of credit, delayed draw term loans and uncalled
capital commitment, at cost, as of December 31, 2019 and September 30, 2019, which are not reflected as liabilities in the accompanying Consolidated Statements of Assets and Liabilities:  December 31,2019


September 30,2019Unused line of credit commitments

$
16,825


$
12,360Delayed draw term loans


15,000



10,000Uncalled capital commitment


843



843Total

$
32,668


$
23,203  36




---

##### Table of Contents

NOTE 11. FINANCIAL HIGHLIGHTS  Three Months Ended December 31,2019


2018Per Common Share
Data(A):Net asset value at beginning of
period(A)

$
8.22


$
8.32Income from operations(B)Net investment income(B)


0.21



0.21Net realized and unrealized gain (loss) on investments


(0.14
)


(0.34
)Net realized and unrealized loss on other


(0.05
)


Total from operations


0.02



(0.13
)Distributions to common stockholders
from(B)(C)Net investment income


(0.21
)


(0.21
)Total distributions


(0.21
)


(0.21
)Capital share transactions(B)Net anti-dilutive effect of equity
offering(D)


0.05



Total capital share transactions


0.05



Net asset value at end of
period(A)

$
8.08


$
7.98Per common share market value at beginning of period

$
9.75


$
9.50Per common share market value at end of period


9.93



7.30Total return(E)


3.96
%


(21.28
)%Common stock outstanding at end of
period(A)


31,050,954



28,504,745Statement of Assets and Liabilities Data:Net assets at end of period

$
250,789


$
227,426Average net assets(F)


249,312



234,061Senior securities Data:Borrowings under Credit Facility, at cost

$
90,800


$
102,200Mandatorily redeemable preferred stock






51,750Long term debt


96,313



57,500Ratios/Supplemental Data:Ratio of net expenses to average net
assets(G)(H)


9.21
%


10.12
%Ratio of net investment income to average net assets(I)


10.30
%


10.23
%  (A)
Based on actual shares outstanding at the end of the corresponding period. (B)
Based on weighted average basic per share data. (C)
The tax character of distributions is determined based on taxable income calculated in accordance with income
tax regulations, which may differ from amounts determined under GAAP. (D)
During the three months ended December 31, 2019, the anti-dilution was a result of issuing common shares
during the period at a price above the then current NAV per share. (E)
Total return equals the change in the ending market value of our common stock from the beginning of the fiscal
year, taking into account distributions reinvested in accordance with the terms of our dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital. For further information on the
estimated character of our distributions to common stockholders, refer to Note 9Distributions to Common Stockholders. (F)
Computed using the average of the balance of net assets at the end of each month of the reporting period. (G)
Ratio of net expenses to average net assets is computed using total expenses, net of credits from the Adviser,
to the base management, loan servicing and incentive fees. (H)
Had we not received any voluntary, unconditional and irrevocable credits of the incentive fee due to the
Adviser, the ratio of net expenses to average net assets would have been 10.56% and 11.06% for the quarters ended December 31, 2019 and 2018, respectively. (I)
Had we not received any voluntary, unconditional and irrevocable credits of the incentive fee due to the
Adviser, the ratio of net investment income to average net assets would have been 8.97% and 9.30% for the quarters ended December 31, 2019 and 2018, respectively.  37




---

##### Table of Contents

NOTE 12. UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES In accordance with the SECs Regulation S-X, we do not consolidate portfolio company investments. Further, in
accordance with ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to
the investment company or its consolidated subsidiaries. We had two unconsolidated subsidiaries, Defiance Integrated Technologies, Inc. and PIC 360, LLC,
that met at least one of the significance conditions under Rule 1-02(w) of the SECs Regulation S-X as of or during at least one of the three month periods ended
December 31, 2019 and 2018. Accordingly, summarized, comparative financial information, in aggregate, is presented below for the three months ended December 31, 2019 and 2018 for our unconsolidated significant subsidiaries.  Three Months EndedDecember 31,Income Statement

2019


2018Net sales

$
7,191


$
7,982Gross profit


950



1,507Net loss


(127
)


156 NOTE 13. SUBSEQUENT EVENTS Portfolio Activity In January 2020, we invested an
additional $5.5 million in Lignetics, Inc., an existing portfolio company, through a combination of secured second lien debt and preferred equity. In January 2020, we invested an additional $3.0 million in Edge Adhesives Holdings, Inc., an existing portfolio company, in the form of preferred equity. In January 2020, we sold our investment in The Mochi Ice Cream Company, which resulted in a realized gain of approximately $2.5 million. In
connection with the sale, we received net cash proceeds of approximately $9.7 million, including the repayment of our debt investment of $6.8 million at par. In January 2020, we exited our investment in Meridian, with a fair value of $0 as of December 31, 2019 and recorded a realized loss of $5.6 million. Distributions and Dividends In January 2020, our
Board of Directors declared the following monthly distributions to common stockholders:  Record Date

Payment Date

Distributionper CommonShareJanuary 24, 2020

January 31, 2020

$
0.07February 19, 2020

February 28, 2020


0.07March 20, 2020

March 31, 2020


0.07Total for the Quarter:

$
0.21  38




---

##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS All statements contained herein, other than historical facts, may constitute forward-looking statements.
These statements may relate to, among other things, our future operating results, our business prospects and the prospects of our portfolio companies, actual and potential conflicts of interest with Gladstone Management Corporation (the
Adviser), our adviser, and its affiliates, the use of borrowed money to finance our investments, the adequacy of our financing sources and working capital, and our ability to co-invest, among other
factors. In some cases, you can identify forward-looking statements by terminology such as estimate, may, might, believe, will, provided, anticipate,
future, could, growth, plan, project, intend, expect, should, would, if, seek, possible,
potential, likely or the negative or variations of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results,
levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include: (1) changes in
the economy and the capital markets, including stock price volatility; (2) risks associated with negotiation and consummation of pending and future transactions; (3) the loss of one or more of our executive officers, in particular David
Gladstone, Terry Lee Brubaker or Robert L. Marcotte; (4) changes in our investment objectives and strategy; (5) availability, terms (including the possibility of interest rate volatility) and deployment of capital; (6) changes in our
industry, interest rates, exchange rates or the general economy; (7) our business prospects and the prospects of our portfolio companies; (8) the degree and nature of our competition; (9) changes in governmental regulation, tax rates
and similar matters; (10) our ability to exit investments in a timely manner; (11) our ability to maintain our qualification as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as
amended (the Code), and as business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act); and (12) those factors described herein, including Item 1A. Risk
Factors, and in the Risk Factors sections of our Annual Report on Form 10-K (our Annual Report) for the fiscal year ended September 30, 2019, filed with the U.S. Securities
and Exchange Commission (SEC) on November 13, 2019 and amended on December 16, 2019. We caution readers not to place undue reliance on any such forward-looking statements. Actual results could differ materially from those
anticipated in our forward-looking statements and future results could differ materially from historical performance. We have based forward-looking statements on information available to us on the date of this report. Except as required by the
federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures
that we may make directly to you or through reports that we have filed or in the future may file with the SEC from time to time, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained in this Quarterly Report on Form 10-Q are excluded from
the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended. The following analysis of our financial condition and results of operations should be read in conjunction with our accompanyingConsolidated
Financial Statementsand the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report. Historical financial condition and results of operations and percentage
relationships among any amounts in the financial statements are not necessarily indicative of financial condition or results of operations for any future periods. Except per share amounts, dollar amounts in the tables included herein are in
thousands unless otherwise indicated. OVERVIEW General We were incorporated under the Maryland
General Corporation Law on May 30, 2001. We operate as an externally managed, closed-end, non-diversified management investment company, and have elected to be
treated as a BDC under the 1940 Act. In addition, for federal income tax purposes we have elected to be treated as a RIC under the Code. To continue to qualify as a RIC for federal income tax purposes and obtain favorable RIC tax treatment, we must
meet certain requirements, including certain minimum distribution requirements. We were established for the purpose of investing in debt and equity
securities of established private businesses operating in the U.S. Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established lower middle market businesses that we believe will provide
stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation
in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. To achieve our investment objectives, our investment strategy is
to invest in several categories of debt and equity securities, with each investment generally ranging from $8 million to $30 million, although investment size may vary, depending upon our total assets or available capital at the time of
investment. We expect that our investment portfolio over time will consist of approximately 90.0% debt investments and 10.0% equity investments, at cost. As of December 31, 2019, our investment portfolio was made up of approximately 91.1% debt
investments and 8.9% equity investments, at cost.  39




---

##### Table of Contents

We focus on investing in lower middle market companies (which we generally define as companies with annual
earnings before interest, taxes, depreciation and amortization of $3 million to $15 million) in the U.S. that meet certain criteria, including the following: the sustainability of the business free cash flow and its ability to grow it
over time, adequate assets for loan collateral, experienced management teams with a significant ownership interest in the borrower, reasonable capitalization of the borrower, including an ample equity contribution or cushion based on prevailing
enterprise valuation multiples and, to a lesser extent, the potential to realize appreciation and gain liquidity in our equity position, if any. We lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or
refinance their existing debt facilities. We seek to avoid investing in high-risk, early-stage enterprises. Our targeted portfolio companies are generally considered too small for the larger capital marketplace. We invest by ourselves or jointly with other funds and/or management of the portfolio company, depending on the opportunity. In July 2012, the SEC granted us
an exemptive order (the Co-Investment Order) that expanded our ability to co-invest, under certain circumstances, with certain of our affiliates, including
Gladstone Investment Corporation, a BDC also managed by the Adviser, and any future business development company or closed-end management investment company that is advised (or
sub-advised if it controls the fund) by the Adviser, or any combination of the foregoing, subject to the conditions in the Co-Investment Order. Since 2012, we have
opportunistically made several co-investments with Gladstone Investment Corporation pursuant to the Co-Investment Order. We believe the
Co-Investment Order has enhanced and will continue to enhance our ability to further our investment objectives and strategies. If we are participating in an investment with one or more co-investors, our investment is likely to be smaller than if we were investing alone. We are externally managed by the
Adviser, an investment adviser registered with the SEC and an affiliate of ours, pursuant to an investment advisory and management agreement. The Adviser manages our investment activities. We have also entered into an administration agreement with
Gladstone Administration, LLC (the Administrator), an affiliate of ours and the Adviser, whereby we pay separately for administrative services. Additionally, Gladstone Securities, LLC (Gladstone Securities), a privately-held broker-dealer registered with the Financial Industry Regulatory
Authority and insured by the Securities Investor Protection Corporation, which is 100% indirectly owned and controlled by Mr. Gladstone, our chairman and chief executive officer, has provided other services, such as investment banking and due
diligence services, to certain of our portfolio companies, for which Gladstone Securities receives a fee. Business Portfolio and Investment Activity In general, our
investments in debt securities have a term of no more than seven years, accrue interest at variable rates (generally based on the 30-day London Interbank Offered Rate (LIBOR)) and, to a lesser
extent, at fixed rates. We seek debt instruments that pay interest monthly or, at a minimum, quarterly, may have a success fee or deferred interest provision and are primarily interest only, with all principal and any accrued but unpaid interest due
at maturity. Generally, success fees accrue at a set rate and are contractually due upon a change of control of a portfolio company, typically from an exit or sale. Some debt securities have deferred interest whereby some portion of the interest
payment is added to the principal balance so that the interest is paid, together with the principal, at maturity. This form of deferred interest is often called
paid-in-kind (PIK) interest. Typically, our equity
investments consist of common stock, preferred stock, limited liability company interests, or warrants to purchase the foregoing. Often, these equity investments occur in connection with our original investment, recapitalizing a business, or
refinancing existing debt. During the three months ended December 31, 2019, we invested $38.0 million in two new portfolio companies and
extended $4.5 million of investments to existing portfolio companies. In addition, during the three months ended December 31, 2019, we exited four portfolio companies through early payoffs or a restructure. We received a total of
$12.6 million in combined net proceeds and principal repayments from the aforementioned portfolio company exits as well as principal repayments by existing portfolio companies during the three months ended December 31, 2019. This activity
resulted in a net decrease in our overall portfolio by two portfolio companies to 51 and a net increase of $26.0 million in our portfolio at cost since September 30, 2019. From our initial public offering in August 2001 through
December 31, 2019, we have made 538 different loans to, or investments in, 242 companies for a total of approximately $1.9 billion, before giving effect to principal repayments on investments and divestitures. During the three months ended December 31, 2019, the following significant transactions occurred: Proprietary Investments  

In October 2019, we invested $14.0 million in Universal Survey Center, Inc. through secured first lien debt.  

In December 2019, we invested $24.0 million in Café Zupas through secured first lien debt.  40




---

##### Table of Contents

Syndicated Investments  

In October 2019, we invested an additional $3.0 million in Medical Solutions Holdings, Inc., an existing
portfolio company, through secured second lien debt.  

In October 2019, our investment in DigiCert Holdings, Inc. paid off at par for net proceeds of $2.4 million.  

In December 2019, our investment in LDiscovery, LLC paid off at par for net proceeds of $5.0 million.  

In December 2019, our investment in United PF Holdings, LLC paid off at par for net proceeds of
$3.1 million. In conjunction with the payoff, we received a prepayment fee of $0.1 million.  

In December 2019, we recorded a net realized loss of $4.4 million related to our investment in New Trident
Holdcorp, Inc. (New Trident) which filed for bankruptcy protection in February 2019. Capital Raising We have been able to meet our capital needs through extensions of and increases to our line of credit under the Fifth Amended and Restated Credit Agreement
with KeyBank National Association (KeyBank), as administrative agent, lead arranger and lender (as amended, our Credit Facility) and by accessing the capital markets in the form of public equity offerings of common and
preferred stock and public debt offerings. We have successfully extended the Credit Facilitys revolving period multiple times, most recently to January 2021, and currently have a total commitment amount of $190.0 million. We sold 705,031
and 2,765 common shares under our at-the-market program during the three months ended December 31, 2019 and 2018, respectively. In October 2019, we completed a
public debt offering of $38.8 million aggregate principal amount of our 5.375% Notes due 2024 (the 2024 Notes), inclusive of the overallotment. Additionally, we completed a public debt offering of $57.5 million aggregate
principal amount of our 6.125% Notes due 2023 (the 2023 Notes), inclusive of the overallotment in November 2018. Refer to Liquidity and Capital Resources  Revolving Credit Facility, Liquidity and Capital
Resources  Equity  Common Stock, and Liquidity and Capital Resources  Notes Payable for further discussion. Although we were able to access the capital markets historically and in recent years, we believe uncertain market conditions could affect the trading price of
our capital stock and thus may inhibit our ability to finance new investments through the issuance of equity. When our common stock trades below net asset value (NAV) per common share, as it has done from time to time, our ability to
issue equity is constrained by provisions of the 1940 Act, which generally prohibits the issuance and sale of our common stock below NAV per common share without first obtaining approval from our stockholders and our independent directors, other
than through sales to our then-existing stockholders pursuant to a rights offering. On December 31, 2019, the closing market price of our common
stock was $9.93, a 22.9% premium to our December 31, 2019 NAV per share of $8.08. Regulatory Compliance Our ability to seek external debt financing, to the extent that it is available under current market conditions, is further subject to the asset coverage
limitations of the 1940 Act, which require us to have an asset coverage (as defined in Sections 18 and 61 of the 1940 Act) of at least 150% on our senior securities representing indebtedness and our senior securities that are
stock. On April 10, 2018, our Board of Directors, including a required majority (as such term is defined in Section 57(o) of
the 1940 Act) thereof, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the Companys asset coverage requirements for senior securities changed from 200% to 150%, effective
April 10, 2019. As of December 31, 2019, our asset coverage on our senior securities representing indebtedness and our senior
securities that are stock was 231.1%. Recent Developments Distributions and Dividends In January 2020, our
Board of Directors declared the following monthly distributions to common stockholders:  Record Date

Payment Date

Distributionper CommonShareJanuary 24, 2020

January 31, 2020

$
0.07February 19, 2020

February 28, 2020


0.07March 20, 2020

March 31, 2020


0.07Total for the Quarter:

$
0.21  41




---

##### Table of Contents

Portfolio and Investment Activity In January 2020, we invested an additional $5.5 million in Lignetics, Inc., an existing portfolio company, through a combination of secured second lien
debt and preferred equity. In January 2020, we invested an additional $3.0 million in Edge Adhesives Holdings, Inc., an existing portfolio company,
in the form of preferred equity. In January 2020, we sold our investment in The Mochi Ice Cream Company, which resulted in a realized gain of
approximately $2.5 million. In connection with the sale, we received net cash proceeds of approximately $9.7 million, including the repayment of our debt investment of $6.8 million at par. In January 2020, we exited our investment in Meridian Rack & Pinion, Inc., with a fair value of $0 as of December 31, 2019 and recorded a
realized loss of $5.6 million. LIBOR Transition In general, our investments in debt securities have a term of five years, accrue interest at variable rates (based on the
one-month LIBOR) and, to a lesser extent, at fixed rates. LIBOR is currently anticipated to be phased out during late 2021. LIBOR is currently expected to transition to a new standard rate, the Secured
Overnight Financing Rate (SOFR), which will incorporate certain overnight repo market data collected from multiple data sets. To attain an equivalent one-month rate, we currently intend to adjust
the SOFR to minimize the difference between the interest that a borrower would be paying using LIBOR versus what it will be paying using SOFR. We are currently monitoring the transition and cannot assure you whether SOFR will become a standard
rate for variable rate debt. However, we expect we will need to renegotiate certain loan documents with our portfolio companies that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is
established. Assuming that SOFR replaces LIBOR and is appropriately adjusted to equate to one-month LIBOR, we expect that there should be minimal impact on our operations.  42




---

##### Table of Contents

RESULTS OF OPERATIONS Comparison of the Three Months Ended December 31, 2019, to the Three Months Ended December 31, 2018  Three Months Ended December 31,2019


2018


$ Change


% ChangeINVESTMENT INCOMEInterest income

$
11,456


$
11,687


$
(231
)


(2.0
)%Other income


703



222



481



216.7Total investment income


12,159



11,909



250



2.1EXPENSESBase management fee


1,852



1,828



24



1.3Loan servicing fee


1,403



1,262



141



11.2Incentive fee


1,394



1,360



34



2.5Administration fee


371



345



26



7.5Interest expense on borrowings and notes payable


2,537



1,898



639



33.7Dividend expense on mandatorily redeemable preferred stock


9



776



(767
)


(98.8
)Amortization of deferred financing fees


361



300



61



20.3Other expenses


531



590



(59
)


(10.0
)Expenses, before credits from Adviser


8,458



8,359



99



1.2Credit to base management fee  loan servicing fee


(1,403
)


(1,262
)


(141
)


11.2Credits to fees from Adviser  other


(1,313
)


(1,174
)


(139
)


11.8Total expenses, net of credits


5,742



5,923



(181
)


(3.1
)NET INVESTMENT INCOME


6,417



5,986



431



7.2NET REALIZED AND UNREALIZED (LOSS) GAINNet realized gain (loss) on investments and other


(5,841
)


(26,863
)


21,022



(78.3
)Net unrealized appreciation (depreciation) of investments


139



17,169



(17,030
)


(99.2
)Net unrealized appreciation of other


(17
)






(17
)


NMNet gain (loss) from investments and other


(5,719
)


(9,694
)


3,975



(41.0
)NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$
698


$
(3,708
)

$
4,406



(118.8
) NM = Not Meaningful Investment Income Interest income decreased by
2.0% for the three months ended December 31, 2019, as compared to the prior year period. The decrease was due primarily to a decrease in the weighted average yield on our interest bearing portfolio, partially offset by an increase in the
weighted average principal balance of our interest bearing portfolio. The weighted average yield on our interest-bearing investments is based on the current stated interest rate on interest-bearing investments, which decreased to 11.3% for the three
months ended December 31, 2019, compared to 12.3% for the three months ended December 31, 2018, inclusive of any allowances on interest receivables made during those periods. The decrease was driven mainly by a decrease in LIBOR over the
two respective periods. The weighted average principal balance of our interest-bearing investment portfolio for the three months ended December 31, 2019, was $401.4 million, compared to $375.5 million for the three months ended
December 31, 2018, an increase of $25.9 million, or 6.9%. As of December 31, 2019, loans to one portfolio company, Meridian
Rack & Pinion, Inc., were on non-accrual status, with an aggregate debt cost basis of approximately $4.1 million, or 1.0% of the cost basis of all debt investments in our portfolio. As of
December 31, 2018, there were no investments on non-accrual status. Other income increased by 216.7% during
the three months ended December 31, 2019, as compared to the prior year period primarily due to an increase in dividend income period over period. As of December 31, 2019 and September 30, 2019, no single investment represented greater than 10% of the total investment portfolio at fair
value. Expenses Expenses, net of any non-contractual, unconditional and irrevocable credits to fees from the Adviser, decreased $0.2 million, or 3.1%, for the three months ended December 31, 2019 as compared to the prior year period. This
decrease was primarily due to a $0.8 million decrease in preferred dividend expense due to the redemption of our Series 2024 Term Preferred Stock in October 2019, partially offset by a $0.6 million increase in interest expense on
borrowings.  43




---

##### Table of Contents

Interest expense increased by 33.7% during the three months ended December 31, 2019, as compared to the
prior year period, due primarily to the issuance of $57.5 million aggregate principal amount of the 2023 Notes in November 2018 and the issuance of $38.8 million aggregate principal amount of the 2024 Notes in October 2019. We incurred
$1.3 million in interest expense related to the notes issuance during the quarter ended December 31, 2019 versus $0.5 million in the prior year period. The weighted average balance outstanding on our Credit Facility was largely
unchanged period over period at $88.2 million during the three months ended December 31, 2019 as compared to $88.9 million in the prior year period, a decrease of 0.8%. The effective interest rate on our Credit Facility, including
unused commitment fees incurred but excluding the impact of deferred financing costs, was 5.4% during the three months ended December 31, 2019, compared to 6.1% during the prior year period. The decrease in the effective interest rate was
driven primarily by a decrease in LIBOR as compared to the prior year period. The net base management fee earned by the Adviser increased by
$0.2 million, or 14.8%, during the three months ended December 31, 2019, as compared to the prior year period, resulting from an increase in average total assets subject to the base management fee and a decrease in credits from the Adviser
period over period. The income-based incentive fee increased slightly for the three months ended December 31, 2019, as compared to the prior year
period, due to higher pre-incentive fee net investment income over the respective periods. Our Board of Directors accepted non-contractual, unconditional and irrevocable
credits from the Adviser of $0.8 million and $0.5 million, to reduce the income-based incentive fee to the extent net investment income did not cover 100.0% of our distributions to common stockholders during the three months ended
December 31, 2019 and 2018, respectively. The base management, loan servicing and incentive fees, and associated
non-contractual, unconditional and irrevocable credits, are computed quarterly, as described under Transactions with the Adviser in Note 4Related Party Transactions of the
Notes to Consolidated Financial Statements and are summarized in the following table:  Three Months EndedDecember 31,2019


2018Average total assets subject to base management fee(A)

$
423,314


$
417,829Multiplied by prorated annual base management fee of 1.75%


0.4375
%


0.4375
%Base management fee(B)

$
1,852


$
1,828Portfolio company fee credit


(352
)


(544
)Senior syndicated loan fee credit


(121
)


(83
)Net Base Management Fee

$
1,379


$
1,201Loan servicing fee(B)


1,403



1,262Credit to base management fee - loan servicing
fee(B)


(1,403
)


(1,262
)Net Loan Servicing Fee

$



$
Incentive fee(B)


1,394



1,360Incentive fee credit


(840
)


(547
)Net Incentive Fee

$
554


$
813Portfolio company fee credit


(352
)


(544
)Senior syndicated loan fee credit


(121
)


(83
)Incentive fee credit


(840
)


(547
)Credits to Fees From Adviser -
other(B)

$
(1,313
)

$
(1,174
)  (A)
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 or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during
the periods. (B)
Reflected, on a gross basis, as a line item on our Consolidated Statements of Operations. Net Realized and Unrealized Gain (Loss) Net Realized Gain (Loss) on Investments For the three
months ended December 31, 2019, we recorded a net realized loss on investments of $4.4 million, which resulted primarily from the loss recognized on our investment in New Trident. For the three months ended December 31, 2018, we recorded a net realized loss on investments of $26.9 million, which resulted primarily from the
restructuring of our investment in Francis Drilling Fluids, Ltd. (FDF).  44




---

##### Table of Contents

Net Unrealized Appreciation (Depreciation) of Investments During the three months ended December 31, 2019, we recorded net unrealized appreciation of investments in the aggregate amount of $0.1 million. The
net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2019, were as follows:  Three Months Ended December 31, 2019Portfolio Company

Realized Gain(Loss)


UnrealizedAppreciation(Depreciation)


Reversal ofUnrealized(Appreciation)Depreciation


NetGain (Loss)The Mochi Ice Cream Company

$



$
1,541


$



$
1,541NetFortris Corp.






704







704Vacation Rental Pros Property Management, LLC






319







319New Trident Holdcorp, Inc.


(4,409
)






4,409



Drive Chassis Holdco, LLC






(156
)






(156
)Precision International, LLC






(248
)






(248
)B+T Group Acquisition Inc.






(264
)






(264
)Sea Link International IRB, Inc.






(317
)






(317
)ENET Holdings, LLC






(362
)






(362
)DKI Ventures, LLC






(430
)






(430
)R2i Holdings, LLC






(442
)






(442
)Triple H Food Processors, LLC






(464
)






(464
)FES Resources Holdings LLC






(635
)






(635
)Targus Cayman HoldCo, Ltd.






(671
)






(671
)Defiance Integrated Technologies, Inc.






(2,724
)






(2,724
)Other, net (<$250)


(25
)


(19
)


(102
)


(146
)Total:

$
(4,434
)

$
(4,168
)

$
4,307


$
(4,295
) The primary driver of net unrealized appreciation of $0.1 million for the three months ended December 31, 2019 was
the reversal of previously recorded unrealized depreciation of New Trident and the improvement in the financial and operational performance of The Mochi Ice Cream Company, partially offset by the decline in the financial and operational performance
of certain of our other portfolio companies, including most notably, Defiance Integrated Technologies, Inc.  45




---

##### Table of Contents

During the three months ended December 31, 2018, we recorded net unrealized appreciation of investments
in the aggregate amount of $17.2 million. The net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2018, were as follows:  Three Months Ended December 31, 2018Portfolio Company

Realized Gain(Loss)


UnrealizedAppreciation(Depreciation)


Reversal ofUnrealized(Appreciation)Depreciation


NetGain (Loss)Lignetics, Inc.

$



$
1,663


$



$
1,663Alloy Die Casting, Co.






1,118







1,118GFRC Holdings, LLC






574







574Precision International, LLC






517







517The Mochi Ice Cream Company






377







377Targus Cayman HoldCo, Ltd.






307







307Gray Matter Systems, LLC






(153
)






(153
)Vision Government Solutions, Inc.






(184
)






(184
)WadeCo Specialties, Inc.






(236
)






(236
)Belnick, Inc.






(250
)






(250
)Meridian Rack & Pinion, Inc.






(269
)






(269
)Travel Sentry, Inc.






(290
)






(290
)Funko Acquisition Holdings, LLC






(299
)






(299
)NetFortris Corp.






(322
)






(322
)EL Academies, Inc.






(466
)






(466
)Arc Drilling Holdings LLC






(478
)






(478
)IA Tech, LLC






(600
)






(600
)Merlin International, Inc.






(600
)






(600
)Impact! Chemical Technologies, Inc.






(619
)






(619
)LWO Acquisitions Company LLC






(848
)






(848
)Edge Adhesives Holdings, Inc.






(2,053
)






(2,053
)Francis Drilling Fluids, Ltd.


(26,850
)






20,379



(6,471
)Other, net (<$250)


(13
)


20



(119
)


(112
)Total:

$
(26,863
)

$
(3,091
)

$
20,260


$
(9,694
) The primary driver of net unrealized appreciation of $17.2 million for the three months ended December 31, 2018 was
the reversal of previously recorded unrealized depreciation upon the restructure of FDF partially offset by the decline in the financial and operational performance of certain of our other portfolio companies, including most notably, Edge Adhesives
Holdings, Inc. Net Realized Loss on Other We
incurred a loss on extinguishment of debt of $1.4 million during the three months ended December 31, 2019, which resulted from the write-off of unamortized deferred issuance costs at the time of
redemption of our Series 2024 Term Preferred Stock in October 2019. No such amounts were recorded during the three months ended December 31, 2018. Net Unrealized (Appreciation) Depreciation of Other During the three months ended December 31, 2019, we recorded $17 thousand of unrealized appreciation related to a change in the fair value of our
Credit Facility. No such amounts were recorded during the three months ended December 31, 2018.  46




---

##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES Operating Activities Our cash flows from operating
activities are primarily generated from the interest payments on debt securities that we receive from our portfolio companies, as well as net proceeds received through repayments or sales of our investments. We utilize this cash primarily to fund
new investments, make interest payments on our Credit Facility, make distributions to our stockholders, pay management and administrative fees to the Adviser and Administrator, and for other operating expenses. Net cash used in operating activities for the three months ended December 31, 2019 was $24.3 million, as compared to net cash used in operating
activities of $43.4 million for the three months ended December 31, 2018. The change was primarily due to a decrease in purchases of investments and an increase in principal repayments, partially offset by a decrease in net realized loss
on investments period over period. Purchases of investments were $42.5 million during the three months ended December 31, 2019, compared to $59.2 million during the three months ended December 31, 2018. Repayments and net
proceeds from sales were $12.6 million during the three months ended December 31, 2019 compared to $8.9 million during the three months ended December 31, 2018. As of December 31, 2019, we had loans to, syndicated participations in or equity investments in 51 companies, with an aggregate cost basis of
approximately $454.4 million. As of September 30, 2019, we had loans to, syndicated participations in or equity investments in 53 companies, with an aggregate cost basis of approximately $428.5 million. The following table summarizes our total portfolio investment activity during the three months ended December 31, 2019 and 2018:  Three Months EndedDecember 31,2019


2018Beginning investment portfolio, at fair value

$
402,875


$
390,046New investments


38,000



49,865Disbursements to existing portfolio companies


4,535



9,363Scheduled principal repayments on investments


(1,963
)


(1,640
)Unscheduled principal repayments on investments


(10,693
)


(7,228
)Net proceeds from sale of investments


25



13Net unrealized appreciation (depreciation) of investments


(4,168
)


(3,092
)Reversal of prior period depreciation (appreciation) of investments on realization


4,307



20,261Net realized gain (loss) on investments


(4,434
)


(26,863
)Increase in investments due to
PIK(A)


328



314Net change in premiums, discounts and amortization


196



108Investment Portfolio, at Fair Value

$
429,008


$
431,147  (A)
PIK interest is a non-cash source of income and is calculated at the
contractual rate stated in a loan agreement and added to the principal balance of a loan. The following table summarizes the
contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of December 31, 2019:  AmountFor the remaining nine months ending September 30:

2020

$
18,765For the fiscal years ending September 30:

2021


66,0362022


82,0802023


77,3172024


70,217Thereafter


100,611Total contractual repayments

$
415,026Adjustments to cost basis of debt investments


(842
)Investments in equity securities


40,262Investments held as of December 31, 2019 at cost:

$
454,446 Financing Activities Net cash provided by financing activities for the three months ended December 31, 2019 was $10.4 million, which consisted primarily of
$38.8 million in gross proceeds from the issuance of long term debt and $23.9 million in net borrowings on our Credit Facility, partially offset by $51.8 million used in the redemption of our Series 2024 Term Preferred Stock and
$6.4 million in distributions to common stockholders.  47




---

##### Table of Contents

Net cash provided by financing activities for the three months ended December 31, 2018 was
$41.8 million, which consisted primarily of $57.5 million in gross proceeds from the issuance of long term debt, partially offset by $7.8 million in net repayments on our Credit Facility and $6.0 million in distributions to
common stockholders. Distributions and Dividends to Stockholders Common Stock Distributions To qualify to be taxed
as a RIC and thus avoid corporate level federal income tax on the income we distribute to our stockholders, we are required to distribute to our stockholders on an annual basis at least 90.0% of our Investment Company Taxable Income. Additionally,
our Credit Facility has a covenant that generally restricts the amount of distributions to stockholders that we can pay out to be no greater than our aggregate net investment income, net capital gains and amounts elected to have been paid during the
prior year in accordance with Section 855(a) of the Code. In accordance with these requirements, we paid monthly cash distributions of $0.07 per common share for each month during the three months ended December 31, 2019 and 2018, which
totaled an aggregate of $6.4 million and $6.0 million, respectively. In January 2020, our Board of Directors declared a monthly distribution of $0.07 per common share for each of January, February, and March 2020. Our Board of Directors
declared these distributions to our stockholders based on our estimates of our Investment Company Taxable Income for the fiscal year ending September 30, 2020. From inception through December 31, 2019, we have paid 203 monthly or quarterly
consecutive distributions to common stockholders totaling approximately $351.6 million or $19.66 per share. For the fiscal year ended
September 30, 2019, distributions declared and paid exceeded taxable income available for common distributions resulting in a partial return of capital of approximately $0.7 million. The characterization of the common stockholder distributions declared and paid for the fiscal year ending September 30, 2020 will be determined at fiscal
year end based upon our investment company taxable income for the full fiscal year and distributions paid during the full fiscal year. Such a characterization made on a quarterly basis may not be representative of the actual full fiscal year
characterization. Preferred Stock Dividends On October 2, 2019, we voluntarily redeemed all 2,070,000 outstanding shares of our Series 2024 Term Preferred Stock at a redemption price of $25.00 per
share which represents the liquidation preference per share, plus accrued and unpaid dividends through October 1, 2019 in the amount of $0.004166 per share, for a payment per share of $25.004166 and an aggregate redemption price of
approximately $51.8 million. In accordance with accounting principles generally accepted in the U.S. (GAAP), we treated these monthly
dividends as an operating expense. For federal income tax purposes, the dividends paid by us to preferred stockholders generally constituted ordinary income to the extent of our current and accumulated earnings and profits and is reported after the
end of the calendar year based on tax information for the full fiscal year. Such a characterization made on an interim, quarterly basis may not be representative of the actual tax characterization for the full fiscal year. Dividend Reinvestment Plan Our common
stockholders who hold their shares through our transfer agent, Computershare, Inc. (Computershare), have the option to participate in a dividend reinvestment plan offered by Computershare, as the plan agent. This is an opt in
dividend reinvestment plan, meaning that common stockholders may elect to have their cash distributions automatically reinvested in additional shares of our common stock. Common stockholders who do make such election will receive their distributions
in cash. Common stockholders who receive distributions in the form of stock will be subject to the same federal, state and local tax consequences as stockholders who elect to receive their distributions in cash. The common stockholder will have an
adjusted basis in the additional common shares purchased through the plan equal to the amount of the reinvested distribution. The additional shares will have a new holding period commencing on the day following the date on which the shares are
credited to the common stockholders account. Computershare purchases shares in the open market in connection with the obligations under the plan. The Computershare dividend reinvestment plan is not open to holders of our preferred stock. Equity Registration Statement Our shelf registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of
common stock, preferred stock, subscription rights, debt securities and warrants to purchase common stock, preferred stock or debt securities. As of December 31, 2019, we had the ability to issue up to an additional $236.7 million in
securities under the registration statement.  48




---

##### Table of Contents

Common Stock In February 2019, we entered into an equity distribution agreement with Jefferies LLC (the Jefferies Sales Agreement) under which we have the
ability to issue and sell, from time to time, up to an aggregate offering price of $50.0 million shares of our common stock. During the three months ended December 31, 2019, we sold 705,031 shares of our common stock under the Jefferies
Sales Agreement, at a weighted-average price of $10.37 per share and raised $7.3 million of gross proceeds. Net proceeds, after deducting commissions and offering costs borne by us, were approximately $7.2 million. As of
December 31, 2019, we had a remaining capacity to sell up to an additional $25.5 million of our common stock under the Jefferies Sales Agreement. We anticipate issuing equity securities to obtain additional capital in the future. However, we cannot determine the timing or terms of any future equity
issuances or whether we will be able to issue equity on terms favorable to us, or at all. To the extent that our common stock trades at a market price below our NAV per share, we will generally be precluded from raising equity capital through public
offerings of our common stock, other than pursuant to stockholder and independent director approval or a rights offering to existing common stockholders. On December 31, 2019, the closing market price of our common stock was $9.93, a 22.9% premium to our December 31, 2019 NAV per share of $8.08. Revolving Credit Facility On July 10, 2019,
we, through Business Loan, entered into Amendment No. 5 to our Credit Facility with KeyBank, which (i) modified the covenants to reduce our minimum asset coverage with respect to senior securities representing indebtedness from 200% to
150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), (ii) amended the excess concentration limits definition to decrease the limit for
non-first lien loans from 60% to 50% under certain circumstances and (iii) amended the distributions covenant to allow a distribution to be applied towards the redemption of our Series 2024 Term Preferred
Stock. On March 9, 2018, we, through Business Loan, entered into Amendment No. 4 to our Credit Facility with KeyBank, which increased the
commitment amount from $170.0 million to $190.0 million, extended the revolving period end date by approximately two years to January 15, 2021, decreased the marginal interest rate added to
30-day LIBOR from 3.25% to 2.85% per annum, and changed the unused commitment fee from 0.50% of the total unused commitment amount to 0.50% when the average unused commitment amount for the reporting period is
less than or equal to 50%, 0.75% when the average unused commitment amount for the reporting period is greater than 50% but less than or equal to 65%, and 1.00% when the average unused commitment amount for the reporting period is greater than 65%.
If our Credit Facility is not renewed or extended by January 15, 2021, all principal and interest will be due and payable on April 15, 2022 (15 months after the revolving period end date). Subject to certain terms and conditions, our
Credit Facility may be expanded up to a total of $265.0 million through additional commitments of new or existing lenders. We incurred fees of approximately $1.2 million in connection with this amendment, which are being amortized through
our Credit Facilitys revolving period end date of January 15, 2021. Interest is payable monthly during the term of our Credit Facility.
Available borrowings are subject to various constraints imposed under our Credit Facility, based on the aggregate loan balance pledged by Business Loan, which varies as loans are added and repaid, regardless of whether such repayments are
prepayments or made as contractually required. Our Credit Facility also requires that any interest or principal payments on pledged loans be remitted directly by the borrower into a lockbox account with KeyBank and with The Bank of New York Mellon
Trust Company, N.A. as custodian. KeyBank, which also serves as the trustee of the account, generally remits the collected funds to us once a month. Our
Credit Facility contains covenants that require Business Loan to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions), and restrict
material changes to our credit and collection policies without the lenders consents. Our Credit Facility generally limits distributions to our stockholders on a fiscal year basis to the sum of our net investment income, net capital gains and
amounts elected to have been paid during the prior year in accordance with Section 855(a) of the Code. Business Loan is also subject to certain limitations on the type of loan investments it can apply as collateral towards the borrowing base to
receive additional borrowing availability under our Credit Facility, including restrictions on geographic concentrations, sector concentrations, loan size, payment frequency and status, average life, portfolio company leverage and lien property. Our
Credit Facility further requires Business Loan to comply with other financial and operational covenants, which obligate Business Loan to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum
number of 25 obligors required in the borrowing base. Additionally, we are subject to a performance guaranty that requires us to maintain (i) a
minimum net worth (defined in our Credit Facility to include our mandatorily redeemable preferred stock) of $205.0 million plus 50% of all equity and subordinated debt raised after May 1, 2015 less 50% of any equity and subordinated debt
retired or redeemed after May 1, 2015, which equates to $267.3 million as of December 31, 2019, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as
may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.  49




---

##### Table of Contents

As of December 31, 2019, and as defined in the performance guaranty of our Credit Facility, we had a
net worth of $343.5 million, asset coverage on our senior securities representing indebtedness of 231.1% and an active status as a BDC and RIC. In addition, we had 34 obligors in our Credit Facilitys borrowing base as of
December 31, 2019. As of December 31, 2019, we were in compliance with all of our Credit Facility covenants. Refer to Note 5Borrowings of the notes to our Consolidated Financial Statementsincluded elsewhere in this
Quarterly Report for additional information regarding our Credit Facility. Notes Payable In October 2019, we completed a public debt offering of $38.8 million aggregate principal amount of 2024 Notes, inclusive of the overallotment option
exercised by the underwriters, for net proceeds of approximately $37.5 million after deducting underwriting discounts, commissions and offering expenses borne by us. In November 2018, we completed a public debt offering of $57.5 million aggregate principal amount of 2023 Notes, inclusive of the overallotment option
exercised by the underwriters, for net proceeds of $55.4 million after deducting underwriting discounts, commissions and offering expenses borne by us. The 2024 Notes and 2023 Notes are traded under the ticker symbols GLADL and GLADD on the Nasdaq Global Select Market, respectively.
The 2024 Notes and 2023 Notes will mature on November 1, 2024 and November 1, 2023, respectively, and may be redeemed in whole or in part at any time or from time to time at the Companys option on or after November 1, 2021 and
November 1, 2020, respectively. The 2024 Notes and 2023 Notes bear interest at a rate of 5.375% and 6.125% per year, respectively, payable quarterly on February 1, May 1, August 1, and November 1 of each year (which equates
to approximately $5.6 million per year). The 2024 Notes and 2023 Notes are recorded at the principal amount, less discounts and offering costs, on our Consolidated Statements of Assets and Liabilities. The indenture relating to the 2024 Notes and 2023 Notes contains certain covenants, including (i) an inability to incur additional debt or issue
additional debt or preferred securities unless the Companys asset coverage meets the threshold specified in the 1940 Act after such borrowing, (ii) an inability to declare any dividend or distribution (except a dividend or distribution
payable in our stock) on a class of our capital stock or to purchase shares of our capital stock unless the Companys asset coverage meets the threshold specified in the 1940 Act at the time of (and giving effect to) such declaration or
purchase, and (iii) if, at any time, we are not subject to the reporting requirements of the Exchange Act, we will provide the holders of the 2024 Notes and 2023 Notes and the trustee with audited annual consolidated financial statements and
unaudited interim consolidated financial statements. Off-Balance Sheet Arrangements We generally recognize success fee income when the payment has been received. As of December 31, 2019 and September 30, 2019, we had off-balance sheet success fee receivables on our accruing debt investments of $7.3 million and $6.2 million (or approximately $0.23 per common share and $0.21 per common share), respectively, that would be
owed to us, generally upon a change of control of the portfolio companies. Consistent with GAAP, we generally have not recognized our success fee receivables and related income in our Consolidated Financial Statements until earned. Due to the
contingent nature of our success fees, there are no guarantees that we will be able to collect all of these success fees or know the timing of such collections. Contractual Obligations We have lines of credit,
delayed draw term loans, and an uncalled capital commitment with certain of our portfolio companies that have not been fully drawn. Since these commitments have expiration dates and we expect many will never be fully drawn, the total commitment
amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused lines of credit, the unused delayed draw term loans, and the uncalled capital commitment as of December 31, 2019 and
September 30, 2019 to be immaterial. The following table shows our contractual obligations as of December 31, 2019, at cost:  Payments Due by PeriodContractual
Obligations(A)

Less than1 Year


1-3 Years


3-5 Years


More than 5Years


TotalCredit Facility(B)

$



$
90,800


$



$



$
90,800Notes Payable










96,313







96,313Interest expense on debt
obligations(C)


10,564



17,824



6,760







35,148Total

$
10,564


$
108,624


$
103,073


$



$
222,261  (A)
Excludes our unused line of credit commitments, unused delayed draw term loans, and uncalled capital
commitments to our portfolio companies in an aggregate amount of $32.7 million, at cost, as of December 31, 2019. (B)
Principal balance of borrowings outstanding under our Credit Facility, based on the maturity date following the
current contractual revolver period end date. (C)
Includes estimated interest payments on our Credit Facility, 2024 Notes, and 2023 Notes. The amount of interest
expense calculated for purposes of this table was based upon rates and balances as of December 31, 2019.  50




---

##### Table of Contents

Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the
reported consolidated amounts of assets and liabilities, including disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ materially
from those estimates under different assumptions or conditions. We have identified our investment valuation policy (which has been approved by our Board of Directors) as our most critical accounting policy, which is described in Note 2Summary of Significant Accounting Policies in the accompanying notes to our Consolidated Financial Statements included elsewhere in this Quarterly Report. Additionally, refer to Note 3Investments in our accompanying Notes
to Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information regarding fair value measurements and our application of Financial Accounting Standards Board Accounting Standards Codification
Topic 820, Fair Value Measurements and Disclosures. We have also identified our revenue recognition policy as a critical accounting policy, which is described in Note 2Summary of Significant Accounting Policies in
our accompanying Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report. Investment Valuation Credit Monitoring and Risk Rating The Adviser monitors a
wide variety of key credit statistics that provide information regarding our portfolio companies to help us assess credit quality and portfolio performance and, in some instances, used as inputs in our valuation techniques. Generally, we, through
the Adviser, participate in periodic board meetings of our portfolio companies in which we hold board seats and also require them to provide annual audited and monthly unaudited financial statements. Using these statements or comparable information
and board discussions, the Adviser calculates and evaluates certain credit statistics. The Adviser risk rates all of our investments in debt securities.
The Adviser does not risk rate our equity securities. For syndicated loans that have been rated by an SEC registered Nationally Recognized Statistical Rating Organization (NRSRO), the Adviser generally uses the average of two corporate
level NRSROs risk ratings for such security. For all other debt securities, the Adviser uses a proprietary risk rating system. While the Adviser seeks to mirror the NRSRO systems, we cannot provide any assurance that the Advisers risk
rating system will provide the same risk rating as an NRSRO would for these securities. The Advisers risk rating system is used to estimate the probability of default on debt securities and the expected loss if there is a default. The
Advisers risk rating system uses a scale of 0 to >10, with >10 being the lowest probability of default. It is the Advisers understanding that most debt securities of medium-sized companies do
not exceed the grade of BBB on an NRSRO scale, so there would be no debt securities in the middle market that would meet the definition of AAA, AA or A. Therefore, the Advisers scale begins with the designation >10 as the best risk rating
which may be equivalent to a BBB from an NRSRO; however, no assurance can be given that a >10 on the Advisers scale is equal to a BBB or Baa2 on an NRSRO scale. The Advisers risk rating system covers both qualitative and quantitative
aspects of the business and the securities we hold. The following table reflects risk ratings for all proprietary loans in our portfolio as of
December 31, 2019 and September 30, 2019, representing approximately 91.3% and 87.7%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:  Rating

As ofDecember 31,2019

As ofSeptember 30,2019Highest

10.0

10.0Average

6.7

6.2Weighted Average

6.7

6.4Lowest

1.0

1.0 The following table reflects the risk ratings for all syndicated loans in our portfolio that were rated by an NRSRO as of
December 31, 2019 and September 30, 2019, representing approximately 6.7% and 9.1%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:  Rating

As ofDecember 31,2019

As ofSeptember 30,2019Highest

6.0

6.0Average

4.9

4.5Weighted Average

5.1

4.5Lowest

4.0

3.0  51




---

##### Table of Contents

The following table reflects the risk ratings for all syndicated loans in our portfolio that were not rated
by an NRSRO as of December 31, 2019 and September 30, 2019, representing approximately 2.0% and 3.2%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:  Rating

As ofDecember 31,2019

As ofSeptember 30,2019Highest

5.0

5.0Average

4.3

2.8Weighted Average

4.4

3.1Lowest

4.0

1.0 Tax Status We
intend to continue to maintain our qualification as a RIC under Subchapter M of the Code for federal income tax purposes. As a RIC, we generally are not subject to federal income tax on the portion of our taxable income and gains distributed to our
stockholders. To maintain our qualification as a RIC, we must maintain our status as a BDC and meet certain source-of-income and asset diversification requirements. In
addition, in order to qualify to be taxed as a RIC, we must distribute to stockholders at least 90% of our Investment Company Taxable Income, determined without regard to the dividends paid deduction. Our policy generally is to make distributions to
our stockholders in an amount up to 100% of our Investment Company Taxable Income. We may retain some or all of our net long-term capital gains, if any, and designate them as deemed distributions, or distribute such gains to stockholders in cash. In order to avoid a 4% federal excise tax on undistributed amounts of income, we must distribute to stockholders, during each calendar year, an amount at
least equal to the sum of: (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gain net income (both long-term and short-term) for the one-year period ending on
October 31 of the calendar year, and (3) any income realized, but not distributed, in the preceding year (to the extent that income tax was not imposed on such amounts) less certain over-distributions in prior years. Under the RIC
Modernization Act, we are permitted to carryforward any capital losses that we may incur for an unlimited period, and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. Recent Accounting Pronouncements Refer to Note
2Summary of Significant Accounting Policies in the notes to our accompanying Consolidated Financial Statements included elsewhere in this Quarterly Report for a description of recent accounting pronouncements.  52




---

##### Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other
market changes that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directly involving the companies whose securities are owned by us; conditions affecting the
general economy; overall market changes; local, regional or global political, social or economic instability; and interest rate fluctuations. The primary
risk we believe we are exposed to is interest rate risk. Because we borrow money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest those funds.
As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. We use a combination of debt and equity capital to finance our investing activities. We
may use interest rate risk management techniques from time to time to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. All of our variable-rate debt investments have rates generally associated with either the current LIBOR or prime rate. As of December 31, 2019, our
portfolio of debt investments on a principal basis consisted of the following:  Variable rates


83.7
%Fixed rates


16.3Total:


100.0
% There have been no material changes in the quantitative and qualitative market risk disclosures for the three months ended
December 31, 2019 from that disclosed in our Annual Report. ITEM 4. CONTROLS AND PROCEDURES a) Evaluation of Disclosure Controls and Procedures As of
December 31, 2019 (the end of the period covered by this report), our management, including our chief executive officer and chief financial officer, evaluated the effectiveness and design and operation of our disclosure controls and procedures.
Based on that evaluation, our management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective at a reasonable assurance level in timely alerting management,
including the chief executive officer and chief financial officer, of material information about us required to be included in periodic SEC filings. However, in evaluation of the disclosure controls and procedures, management recognized that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. b) Changes in Internal Control over Financial Reporting There were no changes in internal controls for the three months ended December 31, 2019 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.  53




---

##### Table of Contents

PART IIOTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time, we may become involved in various investigation, claims and legal proceedings that arise in the ordinary course of our business.
Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While we do not expect that the resolution of these matters, if they arise, would materially affect our business,
financial condition, results of operations or cash flows, resolution of these matters will be subject to various uncertainties and could result in the expenditure of significant financial and managerial resources. Neither we, nor any of our
subsidiaries are currently subject to any material legal proceeding, nor, to our knowledge, is any material legal proceeding pending or threatened against us or any of our subsidiaries. ITEM 1A. RISK FACTORS. Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations and the
trading price of our securities. For a discussion of these risks, please refer to the section captioned Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year
ended September 30, 2019, as filed with the SEC on November 13, 2019 and amended on December 16, 2019. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.  54




---

##### Table of Contents

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. Sales of Unregistered Securities Not applicable. Issuer Purchases of Equity Securities Not
applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. MINE
SAFETY DISCLOSURES. Not applicable. ITEM 5. OTHER INFORMATION. Not applicable.  55




---

##### Table of Contents

ITEM 6. EXHIBITS.  Exhibit

Description3.1

Articles of Amendment and Restatement to the Articles of Incorporation, incorporated by reference to Exhibit 99.a.2 to Pre-Effective Amendment No. 1 to the Registration Statement on FormN-2 (File No.333-63700), filed July 27, 2001.3.2

Articles 
Supplementary Establishing and Fixing the Rights and Preferences of Term Preferred Shares, including Appendix A thereto relating to the Term Preferred Shares, 7.125% Series 
2016, incorporated by reference to Exhibit 2.a.2 to Post-Effective Amendment No. 5 to the Registration Statement on FormN-2 (File No.333-162592), filed October 31, 2011.3.3

Certificate of Correction to Articles Supplementary Establishing and Fixing the Rights and Preferences of Term Preferred Shares, incorporated by reference
 to Exhibit 3.1 to the Current Report on Form 8-K (File No.814-00237), filed October 29, 2015.3.4

Articles Supplementary, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File
 No.814-00237), filed September 21, 2017.3.5

Articles Supplementary Establishing and Fixing the Rights and Preferences of Term Preferred Shares, including Appendix A thereto relating to the
 6.00% Series 2024 Term Preferred Stock, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K (File No.814-00237), filed
September 21, 2017.3.6

Bylaws, incorporated by reference to Exhibit 
99.b to Pre-Effective Amendment No. 1 to the Registration Statement on FormN-2 (File No.333-63700), filed July 27, 2001.3.7

Amendment to Bylaws, incorporated by reference to Exhibit 3.3 to the Quarterly Report on Form 10-Q (File
 No.814-00237), filed February 17, 2004.3.8

Second Amendment to Bylaws, incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No.814-00237), filed July 10, 2007.3.9

Third Amendment to Bylaws, incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File
 No.814-00237), filed June 10, 2011.3.10

Fourth Amendment to Bylaws, incorporated by reference to Exhibit 3.1 to the Current Report on Form8-K (File No.814-00237), filed November 29, 2016.4.1

Form of Certificate for Common Stock, incorporated by reference to Exhibit 99.d.2 to Pre-Effective Amendment
 No. 3 to the Registration Statement on Form N-2 (File No.333-63700), filed August 23, 2001.4.2

Indenture between the Registrant and U.S. Bank National Association, dated as of November 
6, 2018, incorporated by reference to Exhibit 2.d.10 to Post-Effective Amendment No. 7 to the Registration Statement on Form N-2 (File No.333-208637), filed November 6, 2018.4.3

First Supplemental Indenture between the Registrant and U.S. Bank National Association, dated as of November 
6, 2018, incorporated by reference to Exhibit 2.d.11 to Post-Effective Amendment No. 7 to the Registration Statement on Form N-2 (File No.333-208637), filed November 6, 2018.4.4

Second Supplemental Indenture between the Registrant and U.S. Bank National Association, dated as of October 
10, 2019, incorporated by reference to Exhibit 2.d.11 to Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 (File No.333-228720), filed October 10, 2019.31.1

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.+  *
Filed herewith +
Furnished herewith All other exhibits for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related
instruction or are inapplicable and therefore have been omitted.  56




---

##### Table of Contents

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.  GLADSTONE CAPITAL CORPORATIONBy:

/s/Nicole SchaltenbrandNicole SchaltenbrandChief Financial Officer and Treasurer
(principal financial and accounting officer)
 Date: February 5, 2020  57