Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
a) Disclosure Controls and Procedures
As of September 30, 2023 (the end of the period covered by this report), we, 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 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 evaluating 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) Management’s Annual Report on Internal Control Over Financial Reporting
Refer to the Management’s Annual Report on Internal Control over Financial Reporting located in Item 8 of this Form 10-K.
c) Attestation Report of the Registered Public Accounting Firm
Not Applicable.
d) Change in Internal Control over Financial Reporting
There were no changes in internal controls for the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
During the three months ended September 30, 2023, none of our officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) (“Rule 10b5-1 trading arrangement”) or any “non-Rule 10b5-1 trading arrangement.” In addition, during the three months ended September 30, 2023, we did not adopt or terminate any Rule 10b5-1 trading arrangement.
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PART III
We will file a definitive Proxy Statement for our 2024 Annual Meeting of Stockholders (the “2024 Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2024 Proxy Statement that specifically address the items set forth herein are incorporated herein by reference.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is hereby incorporated by reference from our 2024 Proxy Statement.
We have adopted a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all of our officers and directors and to the employees of our Adviser and our Administrator. The Code of Conduct is available in the Investors section of our website under “Governance – Governance Documents” at www.GladstoneCapital.com.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated by reference from our 2024 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 is hereby incorporated by reference from our 2024 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is hereby incorporated by reference from our 2024 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is hereby incorporated by reference from our 2024 Proxy Statement.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. DOCUMENTS FILED AS PART OF THIS ANNUAL REPORT ON FORM 10-K
1. The following financial statements are filed herewith:
Management ’ s Annual Report on Internal Controls over Financial Reporting
71
Report of Independent Registered Public Accounting Firm
72
Consolidated Statements of Assets and Liabilities as of September 30, 202 3 and 202 2
74
Consolidated Statements of Operations for the years ended September 30, 202 3 , 202 2 and 20 21
75
Consolidated Statements of Changes in Net Assets for the years ended September 30, 202 3 , 202 2 and 20 21
77
Consolidated Statements of Cash Flows for the years ended September 30, 202 3 , 202 2 and 20 21
78
Consolidated Schedules of Investments as of September 30, 202 3 and 202 2
79
Notes to Consolidated Financial Statements
93
2. The following financial statement schedule is filed herewith:
Schedule 12-14 Investments in and Advances to Affiliates as of September 30, 202 3 and 202 2
128
No other financial statement schedules are filed herewith because (1) such schedules are not required or (2) the information has been presented in the aforementioned financial statements.
3. Exhibits
The following exhibits are filed as part of this report or are hereby incorporated by reference to exhibits previously filed with the SEC:
3.1 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 Form N-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 Form N-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 for 6.25% Series A Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 814-00237), filed on June 1, 2023.
3.6 Bylaws, incorporated by reference to Exhibit 99.b to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-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.
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3.10 Fourth Amendment to Bylaws, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 814-00237), filed November 29, 2016.
3.11 Fifth Amendment to Bylaws, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 814-00237), filed October 10, 2023.
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 Form of Certificate for 6.25% Series A Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 814-00237), filed on June 1, 2023.
4.3 Indenture between the Registrant and U.S. Bank National Association, dated as of November 6, 2018, incorporated by reference to Exhibit 2.d.l0 to Post-Effective Amendment No. 7 to the Registration Statement on Form N-2 (File No. 333-208637), filed November 6, 2018.
4.4 Third Supplemental Indenture between Gladstone Capital Corporation and U.S. Bank National Association, dated as of December 15, 2020, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 814-00237), filed December 15, 2020.
4.5 Fourth Supplemental Indenture between Gladstone Capital Corporation and U.S. Bank National Association, dated as of November 4, 2021, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 814-00237), filed November 4, 2021.
4.6 Fifth Supplemental Indenture between Gladstone Capital Corporation and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), dated as of August 17, 2023, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 814-00237), filed August 17, 2023.
4.7* Description of Securities
10.1 Stock Transfer Agency Agreement between the Registrant and The Bank of New York, incorporated by reference to Exhibit 99.k.1 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-63700), filed July 27, 2001.
10.2 Custody Agreement between the Registrant and The Bank of New York, dated as of May 5, 2006, incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 814-00237), filed August 1, 2006.
10.3 Administration Agreement between the Registrant and Gladstone Administration, LLC, dated as of October 1, 2006, incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K (File No. 814-00237), filed October 5, 2006.
10.4 Custodial Agreement, incorporated by reference to Exhibit 2.j.2 to Post-Effective Amendment No. 1 to Form N-2 (File No. 333-185191), filed December 23, 2013.
10.5 Amendment No. 1 to Custodial Agreement, incorporated by reference to Exhibit 2.j.3 to Post-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-185191), filed December 23, 2013.
10.6 Amendment No. 2 to Custodial Agreement, incorporated by reference to Exhibit 2.j.4 to Post-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-185191), filed December 23, 2013.
10.7 Fourth Amended and Restated Investment Advisory and Management Agreement between the Registrant and Gladstone Management Corporation, dated as of April 12, 2022, incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 814-00237), filed on May 3, 2022.
10.8 Sixth Amended and Restated Credit Agreement dated as of May 13, 2021 by and among Gladstone Business Loan, LLC as Borrower, Gladstone Management Corporation as Servicer, KeyBank National Association, as Administrative Agent and the financial institutions from the time to time party thereto, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 814-00237), filed May 13, 2021.
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10.9 Amendment No. 1 to the Sixth Amended and Restated Credit Agreement dated as of September 12, 2022 by and among Gladstone Business Loan, LLC as Borrower, Gladstone Management Corporation as Servicer, KeyBank National Association, as Administrative Agent and the financial institutions from the time to time party thereto, incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K (File No. 814-00237), filed November 11, 2022.
10.10 Amendment No. 2 to the Sixth Amended and Restated Credit Agreement dated as of September 20, 2022 by and among Gladstone Business Loan, LLC as Borrower, Gladstone Management Corporation as Servicer, KeyBank National Association, as Administrative Agent and the financial institutions from the time to time party thereto, incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K (File No. 814-00237), filed November 11, 2022.
10.11 Amendment No. 3 to the Sixth Amended and Restated Credit Agreement dated as of October 31, 2022 by and among Gladstone Business Loan, LLC as Borrower, Gladstone Management Corporation as Servicer, KeyBank National Association, as Administrative Agent and the financial institutions from the time to time party thereto, incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K (File No. 814-00237), filed November 11, 2022.
10.12 Amendment No. 4 to Sixth Amended and Restated Credit Agreement, dated as of June 16, 2023 by and among Gladstone Business Loan, LLC, as Borrower, Gladstone Management Corporation, as Servicer, KeyBank National Association, as administrative agent, swingline lender, managing agent and lead arranger and certain other lenders party thereto, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 814-00237), filed on June 22, 2023.
14* Code of Ethics
19 Insider Trading Policy For Gladstone Capital Corporation, incorporated by reference to Exhibit 14 filed herewith.
21* Subsidiaries of the Registrant.
23.1* Consent of PricewaterhouseCoopers LLP.
31.1* Certification of Chief Executive Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
32.1** Certification of Chief Executive Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
32.2** Certification of Chief Financial Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
97.1* Clawback Policy
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Definition Linkbase
104 Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)
* Filed herewith
** Furnished herewith
Attached as Exhibit 101 to this Annual Report on Form 10-K are the following materials, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Consolidated Statements of Assets and Liabilities as of September 30, 2023 and 2022, (ii) the Consolidated Statements of Operations for the years ended September 30, 2023, 2022 and 2021, (iii) the Consolidated Statements of Changes in Net Assets for the years ended September 30, 2023, 2022 and 2021, (iv) the
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Consolidated Statements of Cash Flows for the years ended September 30, 2023, 2022 and 2021, (v) the Consolidated Schedules of Investments as of September 30, 2023 and 2022 and (vi) the Notes to Consolidated Financial Statements.
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 CORPORATION
Date: November 13, 2023
By: /s/ NICOLE SCHALTENBRAND
Nicole Schaltenbrand
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: November 13, 2023
By: /s/ DAVID GLADSTONE
David Gladstone
Chief Executive Officer and Chairman of the Board of Directors (principal executive officer)
Date: November 13, 2023
By: /s/ NICOLE SCHALTENBRAND
Nicole Schaltenbrand
Chief Financial Officer and Treasurer (principal financial and accounting officer)
Date: November 13, 2023
By: /s/ ANTHONY W. PARKER
Anthony W. Parker
Director
Date: November 13, 2023
By: /s/ JOHN OUTLAND
John Outland
Director
Date: November 13, 2023
By: /s/ MICHELA A. ENGLISH
Michela A. English
Director
Date: November 13, 2023
By: /s/ PAUL ADELGREN
Paul Adelgren
Director
Date: November 13, 2023
By: /s/ WALTER H. WILKINSON, JR.
Walter H. Wilkinson, Jr.
Director
Date: November 13, 2023
By: /s/ PAULA NOVARA
Paula Novara
Director
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SCHEDULE 12-14
GLADSTONE CAPITAL CORPORATION
INVESTMENTS IN AND ADVANCES TO AFFILIATES
(AMOUNTS IN THOUSANDS)
Company and Investment (A)(B)(I)(L)(M)
Principal/
Shares/Units (K)
Net
Realized
Gain (Loss) for Period Amount of
Investment
Income (C)
Value as of
September 30,
2022 Gross
Additions (D)
Gross
Reductions (E)
Net
Unrealized
Appreciation
(Depreciation) Value as of
September 30,
2023
AFFILIATE INVESTMENTS— 2.6 %
Secured First Lien Debt— 0.7 %
Diversified/Conglomerate Manufacturing— 0.7 %
Edge Adhesives Holdings, Inc.—Term Debt (S + 5.5 %. 10.8 % Cash, Due 8/2024)
$ 6,140 — ( 42 ) 2,550 — — 345 2,895
Diversified/Conglomerate Service— 0.0 %
Encore Dredging Holdings, LLC—Line of Credit (G)
— — 75 — — — — —
Encore Dredging Holdings, LLC—Term Debt (G)
— — 3,293 22,962 362 ( 23,973 ) 649 —
Encore Dredging Holdings, LLC—Term Debt (G)
— — 727 4,407 116 ( 4,648 ) 125 —
Encore Dredging Holdings, LLC—Delayed Draw Term Loan (G)
— — 700 4,885 78 ( 5,101 ) 138 —
— $ 4,795 $ 32,254 $ 556 $ ( 33,722 ) $ 912 $ —
Total Secured First Lien Debt $ — $ 4,753 $ 34,804 $ 556 ( 33,722 ) $ 1,257 $ 2,895
Preferred Equity — 1.3 %
Diversified/Conglomerate Manufacturing — 0.0 %
Edge Adhesives Holdings, Inc.—Preferred Stock 5,466 — — — — — — —
Diversified/Conglomerate Service— 1.1 %
Encore Dredging Holdings, LLC—Preferred Stock 3,840,000 — — 2,842 — — 1,423 4,265
Personal and Non-Durable Consumer Products (Manufacturing Only)— 0.2 %
Canopy Safety Brands, LLC—Preferred Stock 500,000 — — 798 — — 59 857
Total Preferred Equity $ — $ — $ 3,640 $ — $ — $ 1,482 $ 5,122
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Company and Investment (A)(B)(I)(L)(M)
Principal/
Shares/Units (K)
Net
Realized
Gain (Loss) for Period Amount of
Investment
Income (C)
Value as of
September 30,
2022 Gross
Additions (D)
Gross
Reductions (E)
Net
Unrealized
Appreciation
(Depreciation) Value as of
September 30,
2023
Common Equity— 0.6 %
Personal and Non-Durable Consumer Products (Manufacturing Only)— 0.6 %
Canopy Safety Brands, LLC—Common Stock 1,170,370 — — 647 500 — 1,257 2,404
TOTAL AFFILIATE INVESTMENTS $ — $ 4,753 $ 39,091 $ 1,056 $ ( 33,722 ) $ 3,996 $ 10,421
CONTROL INVESTMENTS— 7.5 %
Secured First Lien Debt— 3.9 %
Diversified/Conglomerate Manufacturing— 0.9 %
Lonestar EMS, LLC—Term Debt ( 8.0 % PIK, Due 6/2027) (F)
3,927 — 302 3,030 677 — 220 3,927
Personal and Non-Durable Consumer Products (Manufacturing Only) — 2.8 %
WB Xcel Holdings, LLC—Line of Credit,$ 32 available (S + 10.5 %, 15.8 % Cash, Due 11/2026)
1,468 — 226 1,468 — — — 1,468
WB Xcel Holdings, LLC—Term Loan (S + 10.5 %, 15.8 % Cash, Due 11/2026)
9,825 — 1,514 9,925 — ( 100 ) — 9,825
$ — $ 1,740 $ 11,393 $ — $ ( 100 ) $ — $ 11,293
Printing and Publishing— 0.2 %
TNCP Intermediate HoldCo, LLC—-Line of Credit, $ 1,100 available ( 8.0 % Cash, Due 10/2024) (F)
900 — 75 1,000 — ( 100 ) — 900
Total Secured First Lien Debt $ — $ 2,117 $ 15,423 $ 677 $ ( 200 ) $ 220 $ 16,120
Secured Second Lien Debt— 1.8 %
Automobile— 1.8 %
Defiance Integrated Technologies, Inc.—Term Debt (S + 9.6 %, 14.9 % Cash, Due 5/2026)
7,425 — 1,075 7,665 — ( 240 ) — 7,425
Unsecured Debt— 0.0 %
Diversified/Conglomerate Manufacturing— 0.0 %
LWO Acquisitions Company LLC—Term Debt (G)
$ — ( 95 ) — — — ( 95 ) 95 —
Preferred Equity— 0.0 %
Personal and Non-Durable Consumer Products (Manufacturing Only) — 0.0 %
WB Xcel Holdings, LLC - Preferred Stock 333 — — 5,687 — — ( 5,687 ) —
Common Equity— 1.8 %
Automobile– 1.0 %
Defiance Integrated Technologies, Inc.—Common Stock 33,321 — — 1,147 — — 2,801 3,948
Diversified/Conglomerate Manufacturing— 0.0 %
Circuitronics EMS Holdings LLC—Common Units (G)
— ( 921 ) — — — ( 921 ) 921 —
Lonestar EMS, LLC - Common Units 100 % — — — — — — —
$ ( 921 ) $ — $ — $ — $ ( 921 ) $ 921 $ —
Machinery— 0.1 %
PIC 360, LLC—Common Equity Units 750 3,700 691 3,454 — — ( 3,170 ) 284
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Company and Investment (A)(B)(I)(L)(M)
Principal/
Shares/Units (K)
Net
Realized
Gain (Loss) for Period Amount of
Investment
Income (C)
Value as of
September 30,
2022 Gross
Additions (D)
Gross
Reductions (E)
Net
Unrealized
Appreciation
(Depreciation) Value as of
September 30,
2023
Printing and Publishing— 0.7 %
TNCP Intermediate HoldCo, LLC—Common Equity Units 790,000 — — 2,337 — — 736 3,073
Total Common Equity $ 2,779 $ 691 $ 6,938 $ — $ ( 921 ) $ 1,288 $ 7,305
TOTAL CONTROL INVESTMENTS $ 2,684 $ 3,883 $ 35,713 $ 677 $ ( 1,456 ) $ ( 4,084 ) $ 30,850
(A) Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio company.
(B) Common stock, warrants, options, membership units and, in some cases, preferred stock are generally non-income producing and restricted.
(C) Represents the total amount of interest, dividends and other income credited to investment income for the portion of the fiscal year an investment was a control or affiliate investment, as appropriate.
(D) Gross additions include increases in investments resulting from new portfolio investments, paid-in-kind interest or dividends, the amortization of discounts and fees, and the exchange of one or more existing securities for one or more new securities.
(E) Gross reductions include decreases in investments resulting from principal collections related to investment repayments or sales, the amortization of premiums and acquisition costs, and the exchange of one or more existing securities for one or more new securities.
(F) Debt security has a fixed interest rate.
(G) Investment was exited/paid off during the year ended September 30, 2023.
(H) Reserved.
(I) Interest rate percentages represent cash interest rates in effect at September 30, 2023, and due dates represent the contractual maturity date. Unless indicated otherwise, all cash interest rates are indexed to one-month Secured Overnight Financing Rate (“SOFR” or “S”), which was 5.32 % as of September 30, 2023. If applicable, paid-in-kind 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 SOFR plus a spread. Due dates represent the contractual maturity date.
(J) Reserved.
(K) Represents the principal balance for debt investments and the number of shares/units held for equity investments as of September 30, 2023. Warrants are represented as a percentage of ownership, as applicable.
(L) Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the FASB Accounting Standard Codification Topic 820, “Fair Value Measurements and Disclosures” fair value hierarchy. Refer to Note 3 —Investments in the accompanying Notes to Consolidated Financial Statements for additional information.
(M) Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of September 30, 2023.
** Information related to the amount of equity in the net profit and loss for the year for the investments listed has not been included in this schedule. This information is not considered to be meaningful due to the complex capital structures of the portfolio companies, with different classes of equity securities outstanding with different preferences in liquidation. These investments are not consolidated, nor are they accounted for under the equity method of accounting.
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