What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-11-13 compared with 2023-11-13 · 156 added, 175 removed, 339 unchanged (49% of the section changed)

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and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities, in connection with our debt investments, that we believe can grow over time to permit us to sell our equity investments for capital gains.

To achieve our investment objectives, our primary 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.

To achieve our investment objectives, our primary investment strategy is to invest in several categories of debt and equity securities, with each investment generally ranging from $8 million to $40

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 September 30, 2024, our investment portfolio was made up of approximately 90.1% debt investments and 9.9% equity investments, at cost.

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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 the Co-Investment Order that expanded our ability to co-invest, under certain circumstances, with certain of our affiliates, including Gladstone Investment, a BDC also managed by the Adviser, and any future BDC or registered 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.

In July 2012, the SEC granted us the Co-Investment Order that expanded our ability to co-invest, under certain circumstances, with certain of our affiliates, including Gladstone Investment, a BDC also managed by the Adviser, Gladstone Alternative, an interval fund also managed by the Adviser, and any future BDC or registered 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.

We believe the Co-Investment Order has enhanced and will continue to enhance our ability to further our investment objectives and strategies.

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From our initial public offering in August 2001 through September 30, 2024, we have made 667 different loans to, or investments in, 277 companies for a total of approximately $2.8 billion, before giving effect to principal repayments on investments and divestitures.

During the year ended September 30, 2023, we invested $101.5 million in five new portfolio companies, received an interest in senior notes of $2.4 million, and extended $71.6 million in investments to existing portfolio companies primarily through refinancings and draws on existing delayed draw term loan and line of credit commitments.

During the year ended September 30, 2024, we invested $53.3 million in four new portfolio companies and extended $124.4 million in investments to existing portfolio companies.

In addition, we received a total of $136.3 million in combined net proceeds and principal repayments from portfolio company exits and principal repayments by existing portfolio companies during the year ended September 30, 2024.

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Proprietary Investments

• In October and November 2022, we received distributions totaling $6.0 million from our investment in Leeds, related primarily to the sale of underlying assets in the fund, which resulted in a realized gain of approximately $4.4 million.

We retain an equity investment in Leeds with no remaining cost basis and fair value of $0.2 million as of September 30, 2023.

• In December 2022, our investment in R2i Holdings, LLC paid off at par for net cash proceeds of $19.2 million.

• In January 2023, we invested $29.0 million in NeoGraf Solutions LLC (“NeoGraf”) through secured first lien debt and common equity.

We also extended NeoGraf a $4.5 million line of credit commitment, which was unfunded at close.

• In January and March 2023, we invested a total of $6.3 million in Salt & Straw, LLC, an existing portfolio company, through funding on our existing delayed draw term loan commitment.

• In March 2023, we invested $13.5 million in Leadpoint Business Services, LLC through secured first lien debt.

We also extended the company a $5.5 million line of credit commitment which was fully funded as of March 31, 2023.

In May 2023, the line of credit was paid off at par for net cash proceeds of $5.5 million and terminated.

• In April 2023, we invested $25.0 million in Technical Resource Management, LLC (“Technical”) through secured first lien debt and equity.

We also extended Technical a $3.0 million line of credit commitment and a $2.5 million delayed draw term loan commitment, each of which were unfunded at close.

• In April 2023, our debt investment in HH-Inspire Acquisition, Inc.

(“Inspire”) was refinanced.

Our original debt investment totaling $35.5 million was redeemed at par plus a $0.2 million prepayment fee and we invested a total of $16.8 million in Inspire through new secured first lien debt and equity, which was net funded through the redemption of our original debt investment.

We also extended Inspire a $1.8 million line of credit commitment, which was unfunded at close.

In June 2023, we invested an additional $3.4 million in Inspire through secured first lien debt and equity.

• In May 2023, we invested $22.0 million in OCI, LLC through secured first lien debt, secured second lien debt, and common equity.

• In June 2023, the majority of our investment in PIC 360, LLC was sold resulting in a net realized gain of $3.7 million.

We continue to retain a small equity investment in PIC 360 with a fair value of approximately $0.3 million.

• In June 2023, we invested $6.5 million in Trowbridge Chicago, LLC (“Trowbridge”) through secured first lien debt and preferred equity.

We also extended Trowbridge a $2.0 million line of credit commitment and a $5.3 million delayed draw term loan commitment, each of which were unfunded at close.

In September 2023, the delayed draw term loan commitment expired.

• In July 2023, we invested an additional $5.0 million in Gray Matter Systems, LLC, an existing portfolio company, through secured second lien debt.

• In September 2023, we invested an additional $4.0 million in Sea Link International IRB, Inc., an existing portfolio company, through secured second lien debt.

• In September 2023, we invested an additional $8.1 million in Antenna Research Associates, Inc., an existing portfolio company, through secured first lien debt.

• In September 2023, our debt investment in Encore Dredging Holdings, LLC (“Encore”) was paid off at par plus $0.4 million in prepayment and early termination fees.

We retain an equity investment in Encore with cost basis of $3.8 million and fair value of $4.3 million as of September 30, 2023.

• In November 2023, we invested $ 11.0 million in Quality Environmental Midco, Inc.

(“Quality”) through secured first lien debt and preferred equity.

We also extended Quality a $ 2.0 million secured first lien line of credit commitment, which was unfunded at close.

In February 2024, we invested an additional $ 5.0 million in Quality

through new secured first lien debt and preferred equity and increased the secured first lien line of credit commitment to $ 3.0 million.

• In November 2023, we extended Cafe Zupas, an existing portfolio company, a new $ 10.5 million secured first lien delayed draw term loan commitment, which was unfunded at close.

We funded $ 1.4 million on the delayed draw term loan in December 2023.

In addition, our existing term loan was paid down by $ 7.3 million.

• In November 2023, our remaining investment in PIC 360, LLC was sold resulting in a net realized gain of $ 0.3 million.

• In December 2023, we invested an additional $ 14.3 million in ALS Education, LLC, an existing portfolio company, through secured first lien debt.

• In December 2023, we invested an additional $ 12.0 million in Leadpoint Business Services, LLC, an existing portfolio company, through secured first lien debt.

• In December 2023, we invested an additional $ 7.0 million in Salt & Straw, LLC, an existing portfolio company, through preferred equity.

We also increased our delayed draw term loan commitment to Salt & Straw, LLC by $ 2.9 million.

• In February and March 2024, we invested a total of an additional $ 13.5 million in SpaceCo Holdings, LLC (“SpaceCo”), an existing portfolio company, through secured first lien debt.

• In February 2024, we invested $ 15.0 million in Perimeter Solutions Group through secured second lien debt.

• In March 2024, we received net cash proceeds of $ 8.4 million from the sale of Trowbridge Chicago, LLC (“Trowbridge”), an existing portfolio company.

In conjunction with the sale, we received $ 0.2 million in prepayment fees and recorded a net realized gain of $ 0.2 million on our equity.

In September 2024, our remaining debt investment in Trowbridge paid off at par for net cash proceeds of $ 0.3 million.

• In April 2024, we invested $ 7.3 million in Total Access Elevator, LLC (“Total Access”) through secured first lien debt and common equity.

We also extended Total Access a $ 3.0 million line of credit commitment and a $ 2.5 million delayed draw term loan commitment, both of which were unfunded at close.

• In April 2024, our debt investment in Giving Home Healthcare, LLC (“Giving Home”) paid off at par for net cash proceeds of $ 29.7 million including a $ 0.9 million prepayment penalty.

We also exercised our warrant position for common equity in Giving Home, which we continue to hold, and received a $ 2.5 million distribution associated with this investment.

• In May 2024, our debt investment in Gray Matter Systems, LLC paid off at par for net cash proceeds of $ 14.0 million including a $ 0.2 million prepayment penalty.

• In May 2024, our debt investment in Pansophic Learning, Ltd.

(“Pansophic”) paid off at par for net cash proceeds of $ 33.0 million.

• In May 2024, we invested $ 20.0 million in RPM Freight Systems, LLC (“RPM”) through secured second lien debt.

We also extended RPM a $ 5.0 million delayed draw term loan commitment, which was unfunded at close.

• In May 2024, our remaining shares in Funko were sold representing an exit of our investment and a return of our equity cost basis of $ 21 thousand and a realized gain of $ 2 thousand.

• In June 2024, we invested an additional $ 7.4 million in Workforce QA, LLC, an existing portfolio company, through secured first lien debt.

• In July 2024, we invested an additional $ 6.5 million in Turn Key Health Clinics, LLC (“Turn Key”), an existing portfolio company, through secured first lien debt.

We also extended Turn Key an additional $ 2.0 million line of credit commitment which was funded in July 2024.

• In September 2024, we invested an additional $ 13.5 million in Arc Drilling Holdings LLC, an existing portfolio company, through secured first lien debt and common equity.

We also extended Arc Drilling an additional $ 4.0 million line of credit commitment and funded $0.9 million under the line of credit at close.

Syndicated Investments

• In October 2022, our investment in Targus Cayman HoldCo Ltd.

was sold for net proceeds of approximately $8.0 million, which resulted in a realized gain of approximately $5.9 million.

As part of the proceeds, we received an interest in B.

Riley Financial, Inc.

6.75% senior notes in the amount of $2.4 million which are traded on Nasdaq under the trading symbol RILYO.

In June 2023, we redeemed our investment in B.

Riley Financial, Inc.

6.75% senior notes at par for proceeds of $2.4 million.

• In September 2023, our investment in CPM Holdings, Inc.

paid off at par for net cash proceeds of $0.8 million.

• In January 2024, our investment in CHA Holdings, Inc.

paid off at par for net proceeds of $ 3.0 million.

• In July 2024, our investment in Tailwind Smith Cooper Immediate Corporation paid off at par for net proceeds of $ 5.0 million.

Refer to Note 14 — Subsequent Events in the accompanying Consolidated Financial Statements included elsewhere in this Annual Report for portfolio activity occurring subsequent to September 30, 2024.

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In November 2021, we completed a private placement of $50.0 million aggregate principal amount of the 2027 Notes.

In December 2020, we completed an offering of $100.0 million aggregate principal amount of the 2026 Notes.

In March 2021, we completed an offering of an additional $50.0 million aggregate principal amount of the 2026 Notes.

Refer to “Liquidity and Capital Resources — Revolving Line of Credit,” “Liquidity and Capital Resources — Equity — Common Stock,” and “Liquidity and Capital Resources — Notes Payable” for further discussion.

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As a result, the Company’s asset coverage requirements for senior securities changed from 200% to 150%, effective April 10, 2019.

As of September 30, 2023, our asset coverage on our “senior securities representing indebtedness” was 231.1 %.

As of September 30, 2024, our asset coverage on our “senior securities representing indebtedness” was 243.6 % and our asset coverage on our “senior securities that are stock” was 237.3%.

Recent Developments

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Total for the Quarter $ 0.4950

Record Date Payment Date Distribution per Series A Preferred Stock(A)

Record Date Payment Date Distribution per Series A Preferred Stock

October 24, 2024 November 4, 2024 $ 0.130208

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Total for the Quarter $ 0.390624

(A) As of the date of this filing, there are no shares of Series A Preferred Stock outstanding.

LIBOR Transition

In general, our investments in debt securities have a term of no more than seven years, accrue interest at variable rates (based on SOFR or historically, LIBOR) and, to a lesser extent, at fixed rates.

As of September 30, 2023, LIBOR is no longer readily available.

In the United States, LIBOR has predominantly been transitioned to a new standard rate, SOFR, which incorporates certain overnight repo market data collected from multiple data sets.

The new variable rate debt investments that we are making are based on SOFR and our existing investments have been transitioned from LIBOR to SOFR with minimal impact on our operations.

Impact of Inflation

We believe the effects of inflation on our historical results of operations and financial condition have not been significant.

During the year ended September 30, 2023, general inflationary pressures and certain commodity price volatility have impacted our portfolio companies to varying degrees;

however, the broad based impact of these pricing changes have largely been mitigated by price adjustments without adverse sales implications, and thus, have not materially impacted our portfolio companies’ ability to service their indebtedness, including our loans.

Notwithstanding the results to date, the cumulative effect of these inflationary pressures may, in the future, impact the profit margins or sales of certain portfolio companies and their ability to service their debts.

We continue to monitor the current inflationary environment to anticipate any impact on our portfolio companies, including their ability to pay interest on our loans.

We cannot assure you that our results of operations and financial condition or that of our portfolio companies will not be materially impacted by inflation in the future.

See “Risk Factors— We may experience fluctuations in our quarterly and annual results based on the impact of inflation in the U.S.”

In November 2024, our Board of Directors declared the following supplemental distribution to common stockholders:

Record Date Payment Date Distribution per Common Share

December 4, 2024 December 18, 2024 $ 0.4000

RESULTS OF OPERATIONS

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Net realized gain (loss) on investments

12,345 5,416 6,929 127.9

2,008 12,345 (10,337) NM

Net realized gain (loss) on other

319 (243) 562 (231.3)

3,951 319 3,632 NM

Net unrealized appreciation (depreciation) of investments

(11,016) (17,538) 6,522 (37.2)

42,703 (11,016) 53,719 NM

Net gain (loss) from investments and other

1,648 (12,365) 14,013 (113.3)

48,662 1,648 47,014 NM

PREFERRED STOCK DIVIDENDS 215 — 215 NM

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

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PER BASIC AND DILUTED COMMON SHARE

Net investment income

Net investment income (A)

$ 2.11 $ 2.20 $ (0.09) (4.1) %

Net increase (decrease) in net assets resulting from operations

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

$ 4.34 $ 2.29 $ 2.05 89.5 %

NM N ot Meaningful

(A) Per share amounts have been adjusted on a retroactive basis to reflect the Reverse Stock Split effected on April 4, 2024.

Refer to Note 2— Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements for additional information.

Investment Income

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The increase in the weighted average yield was driven mainly by increases in interest rates.

As of September 30, 2023, our loan to Edge Adhesives Holdings, Inc.

was on non-accrual status with a cost basis of $ 6.1 million, or 0.9 % of the cost basis of all debt investments in our portfolio, and a fair value of $ 2.9 million, or 0.5 % of the fair value of all debt investments in our portfolio.

As of September 30, 2022, there were no loans on non-accrual status.

Other income decreased by 62.8% during the year ended September 30, 2023, as compared to the prior year period primarily due to a $3.9 million decrease in success fees received and a $1.9 million decrease in dividend income year over year.

As of September 30, 2023 and 2022, no single investment represented greater than 10% of the total investment portfolio at fair value.

As of September 30, 2024, our loans to B+T Group, Edge Adhesives, and WB Xcel were on non-accrual status with a cost basis of $ 28.3 million, or 4.1 % of the cost basis of all debt investments in our portfolio, and a fair value of $ 12.8 million, or 1.9 % of the fair value of all debt investments in our portfolio.

As of September 30, 2023, our loan to Edge Adhesives was on non-accrual status with a cost basis of $ 6.1 million, or 0.9 % of the cost basis of all debt investments in our portfolio, and a fair value of $ 2.9 million, or 0.5 % of the fair value of all debt investments in our portfolio.

Other income decreased by 2.3% during the year ended September 30, 2024, as compared to the prior year period primarily due to a $0.6 million decrease in success fees received and a $0.1 million decrease in dividend income year over year, partially offset by a $0.7 million increase in prepayment fees received year over year.

As of September 30, 2024, our investment in Antenna Research Associates, Inc.

represented 11.4% of the total investment portfolio at fair value.

As of September 30, 2023, no single investment represented greater than 10% of the total investment portfolio at fair value.

Expenses, net of any non-contractual, unconditional and irrevocable credits to fees from the Adviser, increased $5.1 million, or 11.3%, for the year ended September 30, 2024 as compared to the prior year.

This increase was primarily due to a $7.9 million increase in interest expense on borrowings and a $3.2 million increase in the net incentive fee.

Total interest expense on borrowings and notes payable increased by $7.9 million, or 60.8%, during the year ended September 30, 2023 compared to the prior year.

This increase was driven by increased borrowings outstanding under our Credit Facility and an increase in the effective interest rate on our Credit Facility.

Interest expense on our Credit Facility increased by $7.3 million period over period, driven primarily by an increase in the effective interest rate on our Credit Facility and an increase in the weighted average balance outstanding on our Credit Facility, partially offset by a decrease in unused commitment fees, period over period.

This increase was primarily due to a $2.0 million increase in the net base management fee, a $1.0 million increase in the net incentive fee, and a $0.9 million increase in interest expense.

Total interest expense on borrowings and notes payable increased by $0.9 million, or 4.2%, during the year ended September 30, 2024 as compared to the prior year.

This increase was driven primarily by a shift in the composition of our debt outstanding.

Interest expense on notes payable increased by $3.9 million period over period with the issuance of our 2028 Notes in August 2023.

Interest expense on our Credit Facility decreased by $3.0 million period over period, driven primarily by a decrease in the weighted average balance outstanding on our Credit Facility, partially offset by an increase in the effective interest rate on our Credit Facility and an increase in unused commitment fees, period over period.

The effective interest rate on our Credit Facility, including unused commitment fees incurred, but excluding the impact of deferred financing costs, was 11.0% during the year ended September 30, 2024, compared to 8.0% during the prior year.

The increase in the effective interest rate was driven primarily by an increase in interest rates.

The weighted average balance outstanding on our Credit Facility was $133.7 million during the year ended September 30, 2023, as compared to $56.1 million in the prior year, an increase of 138.3%.

The increase in the effective interest rate was driven primarily by an increase in unused commitment fees.

The weighted average balance outstanding on our Credit Facility was $70.6 million during the year ended September 30, 2024, as compared to $133.7 million in the prior year, a decrease of 47.2%.

The net base management fee earned by the Adviser increased by $2.0 million, or 23.6%, during the year ended September 30, 2024, as compared to the prior year, resulting from an increase in average total assets subject to the base management fee and a decrease in credits to the base management fee from the Adviser for new deal origination fees, year over year.

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(B) Reflected, on a gross basis, as a line item on our accompanying Consolidated Statement of Operations located elsewhere in this Annual Report.

Realized Loss and Unrealized Appreciation

Net Realized Gain (Loss) on Investments

For the year ended September 30, 2024, we recorded a net realized gain on investments of $2.0 million, which resulted primarily from a $1.5 million realized gain recognized on our investment in Giving Home.

For the year ended September 30, 2023, we recorded a net realized gain on investments of $12.3 million, which resulted primarily from a $5.9 million realized gain recognized on the sale of our investment in Targus Cayman HoldCo, Ltd.

(“Targus”), a $4.1 million realized gain recognized on our investment in Leeds Novamark Capital I, L.P.

(“Leeds”), and a $3.7 million realized gain recognized on our investment in PIC 360, LLC (“PIC 360”).

For the year ended September 30, 2022, we recorded a net realized gain on investments of $5.4 million, which resulted primarily from a $13.4 million realized gain recognized on the sale of our investment in Lignetics, Inc.

(“Lignetics”), partially offset by an $8.5 million realized loss recognized on the restructuring of our investment in LWO Acquisitions Company LLC (“LWO”).

(“Leeds”), and a $3.7 million realized gain recognized on our investment in PIC 360, LLC.

Net Unrealized Appreciation (Depreciation) of Investments

During the year ended September 30, 2024, we recorded net unrealized appreciation of investments in the aggregate amount of $42.7 million.

The net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the year ended September 30, 2024 were as follows:

Year Ended September 30, 2024

Portfolio Company Realized Gain

(Depreciation) Reversal of

(Appreciation) Net Gain

Antenna Research Associates, Inc.

$ — $ 40,987 $ — $ 40,987

Lonestar EMS, LLC — 8,284 — 8,284

MCG Energy Solutions, LLC — 3,555 — 3,555

Salt & Straw, LLC — 3,041 — 3,041

Giving Home Health Care, LLC 1,465 1,220 — 2,685

Sokol & Company Holdings, LLC — 1,520 — 1,520

TNCP Intermediate HoldCo, LLC — 1,239 — 1,239

Café Zupas — 996 — 996

Quality Environmental Midco, Inc.

Ohio Armor Holdings, LLC — 850 — 850

NeoGraf Solutions, LLC — 839 — 839

Arc Drilling Holdings LLC — 784 — 784

8th Avenue Food & Provisions, Inc.

Total Access Elevator, LLC — 679 — 679

Leadpoint Business Services, LLC — 636 — 636

Canopy Safety Brands, LLC — 629 — 629

ENET Holdings, LLC — 576 — 576

Tailwind Smith Cooper Intermediate Corporation — 683 (121) 562

OCI, LLC — 549 — 549

Trowbridge Chicago, LLC 332 (23) 109 418

SpaceCo Holdings, LLC — 414 — 414

Axios Industrial Group, LLC — 367 — 367

ALS Education, LLC — 317 — 317

Viva Railings, L.L.C.

Sea Link International IRB, Inc.

DKI Ventures, LLC — (668) — (668)

Technical Resource Management, LLC — (829) — (829)

Defiance Integrated Technologies, Inc.

— (1,000) — (1,000)

Encore Dredging Holdings, LLC — (1,097) — (1,097)

Engineering Manufacturing Technologies, LLC — (1,173) — (1,173)

Edge Adhesives Holdings, Inc.

— (2,515) — (2,515)

HH-Inspire Acquisition, Inc.

— (2,817) — (2,817)

B+T Group Acquisition Inc.

— (3,586) — (3,586)

Eegee's LLC — (4,568) — (4,568)

FES Resources Holdings LLC — (4,670) — (4,670)

WB Xcel Holdings, LLC — (4,830) — (4,830)

Other, net (<$500) 211 257 (212) 256

$ 2,008 $ 42,927 $ (224) $ 44,711

The primary driver of net unrealized appreciation of $42.7 million for the year ended September 30, 2024 was improvement in the financial and operational performance of certain of our portfolio companies partially offset by the

decrease in comparable transaction multiples used to estimate the fair value of certain of our other portfolio companies, and the decline in the financial and operational performance of certain of our other portfolio companies.

During the year ended September 30, 2023, we recorded net unrealized depreciation of investments in the aggregate amount of $11.0 million.

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The primary driver of net unrealized depreciation of $11.0 million for the year ended September 30, 2023 was the reversal of unrealized appreciation associated with the exit of our investment in Targus, the reversal of unrealized appreciation associated with our investment in PIC 360, and the sale of underlying assets within Leeds, as well as the decrease in comparable transaction multiples used to estimate the fair value of certain of our other portfolio companies, and the decline in the financial and operational performance of certain of our other portfolio companies.

During the year ended September 30, 2022, we recorded net unrealized depreciation of investments in the aggregate amount of $17.5 million.

The net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the year ended September 30, 2022 were as follows:

Year Ended September 30, 2022

Portfolio Company Realized Gain

(Depreciation) Reversal of

(Appreciation) Net Gain

LWO Acquisitions Company LLC $ (8,496) $ (328) $ 14,119 $ 5,295

ENET Holdings, LLC — 4,785 447 5,232

NetFortris Holdings LLC — 3,949 (284) 3,665

WB Xcel Holdings, LLC — 2,937 — 2,937

Imperative Holdings Corporation — 2,195 — 2,195

R2i Holdings, LLC — 620 — 620

TNCP Intermediate HoldCo, LLC — 609 — 609

AG Transportation Holdings, LLC 468 — — 468

HH-Inspire Acquisition, Inc.

— (277) — (277)

Axios Industrial Group, LLC — (345) — (345)

ALS Education, LLC — (351) — (351)

GFRC Holdings, LLC — (357) — (357)

SpaceCo Holdings, LLC — (359) — (359)

Café Zupas — (386) — (386)

Tailwind Smith Cooper Intermediate Corporation — (416) — (416)

Viva Railings, L.L.C.

— (436) — (436)

PIC 360, LLC — (529) — (529)

Eegee's LLC — (536) — (536)

8th Avenue Food & Provisions, Inc.

— (622) — (622)

DKI Ventures, LLC — (645) — (645)

Triple H Food Processors, LLC — (814) — (814)

Ohio Armor Holdings, LLC — (1,136) — (1,136)

Defiance Integrated Technologies, Inc.

— (1,468) (28) (1,496)

MCG Energy Solutions, LLC — (1,549) — (1,549)

Lignetics, Inc.

13,408 — (14,958) (1,550)

Engineering Manufacturing Technologies, LLC — (1,593) — (1,593)

Targus Cayman HoldCo, Ltd.

— (2,052) — (2,052)

B+T Group Acquisition Inc.

— (3,350) — (3,350)

Encore Dredging Holdings, LLC — (3,353) — (3,353)

Edge Adhesives Holdings, Inc.

— (3,590) — (3,590)

Lonestar EMS, LLC — (6,970) — (6,970)

Other, net (<$500) 36 (124) (343) (431)

$ 5,416 $ (16,491) $ (1,047) $ (12,122)

The primary driver of net unrealized depreciation of $17.5 million for the year ended September 30, 2022 was the reversal of unrealized appreciation associated with the exit of our investment in Lignetics, the decrease in comparable transaction multiples used to estimate the fair value of certain of our other portfolio companies, a pricing decrease in the broadly syndicated loan market, and the decline in the financial and operational performance of certain of our other portfolio companies, partially offset by the reversal of unrealized depreciation associated with the restructuring of our investment in LWO and unrealized appreciation recognized on ENET Holdings, LLC and NetFortris Holdings LLC.

As of September 30, 2023, the fair value of our investment portfolio was less than its cost basis by approximately $17.5 million and our entire investment portfolio was valued at 97.6% of cost, as compared to cumulative net unrealized depreciation of $6.4 million and a valuation of our entire portfolio at 99.0% of cost as of September 30, 2022.

As of September 30, 2024, the fair value of our investment portfolio was greater than its cost basis by approximately $25.2 million and our entire investment portfolio was valued at 103.3% of cost, as compared to cumulative net unrealized depreciation of $17.5 million and a valuation of our entire portfolio at 97.6% of cost as of September 30, 2023.

Comparison of the Year Ended September 30, 2023 to the Year Ended September 30, 2022

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We utilize this cash primarily to fund new investments, make interest payments on our Credit Facility and notes payable, 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 year ended September 30, 2023 was $10.9 million as compared to $76.4 million for the year ended September 30, 2022.

The change was primarily due to a decrease in purchases of investments.

Purchases of investments were $175.5 million during the year ended September 30, 2023 compared to $274.9 million during the year ended September 30, 2022.

Net cash provided by operating activities for the year ended September 30, 2024 was $3.2 million as compared to net cash used in operating activities of $10.9 million for the year ended September 30, 2023.

The change was primarily due to an increase in repayments and net proceeds from sales year over year.

Repayments and net proceeds from sales were $140.2 million during the year ended September 30, 2024 compared to $125.5 million during the year ended September 30, 2023.

As of September 30, 2024, we had loans to, syndicated participations in or equity investments in 49 companies, with an aggregate cost basis of approximately $771.0 million.

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Net unrealized appreciation (depreciation) of investments

1,702 (16,491)

Reversal of prior period net depreciation (appreciation) of investments

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Financing Activities

Net cash used in financing activities for the year ended September 30, 2024 was $2.3 million, which consisted primarily of $43.1 million in distributions to common shareholders, partially offset by $22.8 million in net borrowings on our Credit Facility, $11.0 million in gross proceeds from the issuance of common stock, and $7.8 million in net proceeds from the issuance of preferred stock.

Net cash provided by financing activities for the year ended September 30, 2023 was $10.2 million, which consisted primarily of $87.4 million in gross proceeds from the issuance of common stock and $57.0 million in gross proceeds from the issuance of notes payable, partially offset by $94.0 million in net repayments on our Credit Facility and $35.4 million in distributions to common shareholders.

Net cash provided by financing activities for the year ended September 30, 2022 was $77.7 million, which consisted primarily of $91.3 million in net borrowings on our Credit Facility and $50.0 million in gross proceeds from the issuance of notes payable, partially offset by $38.8 million used in the redemption of our 2024 Notes and $27.3 million in distributions to common shareholders.

Net cash provided by financing activities for the year ended September 30, 2021 was $12.4 million, which consisted primarily of $150.0 million in gross proceeds from the issuance of notes payable and $26.9 million in gross proceeds from the issuance of common stock, partially offset by $77.5 million in net repayments on our Credit Facility, $57.5 million used in the redemption of our 2023 Notes, and $26.0 million in distributions to common shareholders.

Distributions to Stockholders

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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, during the year ended September 30, 2023, we paid monthly cash distributions of $0.07 per common share for each of October, November, and December 2022, $0.075 per common share for each of January, February, and March 2023, $0.08 per common share for each of April, May, and June 2023, $0.0825 per common share for each of July, August, and September 2023, and a supplemental distribution of $0.02 per common share in September 2023.

These distributions totaled an aggregate of $35.4 million.

During the year ended September 30, 2022, we paid monthly cash distributions of $0.065 per common share for the months of October 2021 through March 2022 and paid monthly cash distributions of $0.0675 per common share for the months of April 2022 through September 2022.

In accordance with these requirements, during the year ended September 30, 2024, we paid monthly cash distributions of $0.165 per common share.

These distributions totaled an aggregate of $43.1 million.

In October 2024, our Board of Directors declared a monthly distribution of $0.165 per common share for each of October, November, and December 2024.

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, 2024.

From inception through September 30, 2023, we have paid distributions to common stockholders totaling approximately $459.0 million or $22.77 per share.

For the fiscal year ended September 30, 2023, our current and accumulated earnings and profits exceeded common stock distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $5.0 million of the first common distributions paid to common stockholders in the subsequent fiscal year as having been paid in the prior year.

For the fiscal years ended September 30, 2022 and 2021, distributions declared and paid exceeded taxable income available for common distributions resulting in a partial return of capital of approximately $1.4 million and $1.0 million, respectively.

In November 2024, our Board of Directors declared a supplemental distribution of $0.40 per common share payable in December 2024.

Our Board of Directors declared these distributions to our stockholders based on our estimates of our Investment Company Taxable Income for the fiscal year ended September 30, 2025.

For the fiscal years ended September 30, 2024 and September 30, 2023, our current and accumulated earnings and profits exceeded common stock distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $6.6 million and $5.0 million, respectively, of the first common distributions paid to common stockholders in the subsequent fiscal year as having been paid in the prior year.

For the fiscal year ended September 30, 2022 distributions

declared and paid exceeded taxable income available for common distributions resulting in a partial return of capital of approximately $1.4 million.

Preferred Stock Dividends

We paid monthly cash dividends of $0.130208 per share to holders of our Series A Preferred Sock for each month from January through September during the year ended September 30, 2024, which totaled an aggregate of $0.2 million.

In October 2024, our Board of Directors declared monthly cash dividends of $0.130208 per share to holders of our Series A Preferred stock for each of October, November, and December 2024.

Dividend payments to our preferred stockholders are included in preferred stock dividends on our Consolidated Statements of Operations.

For federal income tax purposes, the dividends paid by us to 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.

Dividend Reinvestment Plan

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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 or preferred stock.

As of September 30, 2023, we had the ability to issue up to an additional $151.1 million in securities under the registration statement.

In May 2021, we entered into an equity distribution agreement with Jefferies LLC, as amended in August 2022 (the “Sales Agreement”), under which we have the ability to issue and sell, from time to time, shares of our common stock with an aggregate offering price of up to $100.0 million in an “at the market offering” (the “ATM Program”).

In July 2023, we amended and restated the Sales Agreement to add Huntington Securities, Inc.

as a sales agent under the ATM Program in addition to Jefferies LLC.

Our shelf registration statement on Form N-2 (File No.

333-275934) (the “2024 Registration Statement”), which was declared effective on January 17, 2024, permits us to issue, through one or more transactions, up to an aggregate of $700.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common stock or preferred stock.

As of September 30, 2024, we had the ability to issue up to $689.0 million in securities under the 2024 Registration Statement.

In August 2024, we entered into an equity distribution agreement with Jefferies LLC and Huntington Securities, Inc, (the “2024 Sales Agreement”) under which we have the ability to issue and sell, from time to time, shares of our common stock with an aggregate offering price of up to $150.0 million in an “at the market offering” (the “2024 ATM Program”).

During the year ended September 30, 2024, we sold 476,138 shares of our common stock under the 2024 Sales Agreement, at a weighted-average price of $23.10 per share and raised $11.0 million of gross proceeds.

Net proceeds, after deducting commissions and offering costs borne by us, were approximately $10.8 million.

As of September 30, 2023, we had a remaining capacity to sell up to an additional $0.4 million of our common stock under the Sales Agreement.

As of September 30, 2024, we had a remaining capacity to sell up to an additional $139.0 million of our common stock under the 2024 ATM Program.

We anticipate issuing equity securities to obtain additional capital in the future.

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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 September 30, 2023, the closing market price of our common stock was $ 9.64 per share, a 2.7 % premium to our September 30, 2023 NAV per share of $ 9.39 .

Revolving Line of Credit

On May 13, 2021, we, through Business Loan, amended and restated the Credit Facility to, among other things, (i) decrease the commitment amount from $205.0 million to $175.0 million, (ii) extend the revolving period end date to October 31, 2023, (iii) extend the maturity date to October 31, 2025 (at which time all principal and interest will be due and payable if the Credit Facility is not extended by the revolving period end date), (iv) reduce the interest rate margin to 2.70% during the revolving period and 3.25% thereafter, with a LIBOR floor of 0.35%, (v) revise the unused fee to include an additional fee tier of 0.35% per annum on the daily undrawn amounts if the average unused amount is equal to or less than 35%

during the applicable period, (vi) provide for certain excess concentration limits, including a reduced second lien limit and a new broadly syndicated loan limit and (vii) add customary LIBOR replacement language.

We incurred fees of approximately $1.1 million in connection with this amendment and restatement, which are being amortized through our Credit Facility’s revolving period end date of October 31, 2023.

On September 12, 2022, we, through Business Loan, entered into Amendment No.

1 to the Credit Facility to update the reference rate from LIBOR to Term SOFR plus an 11 basis point credit spread adjustment.

On September 20, 2022, we, through Business Loan, entered into Amendment No.

2 to the Credit Facility to increase the size of the credit facility by $50.0 million from $175.0 million to $225.0 million, as permitted under the terms of the Credit Facility.

On October 31, 2022, we, through Business Loan, entered into Amendment No.

3 to the Credit Facility to increase the size of the Credit Facility by $20.0 million from $225.0 million to $245.0 million, as permitted under the terms of the Credit Facility.

On June 16, 2023, we, through Business Loan, entered into Amendment No.

4 to the Credit Facility to, among other things, (i) decrease the commitment amount from $245.0 million to $223.7 million, (ii) extend the revolving period end date to October 31, 2025, (iii) extend the maturity date to October 31, 2027 (at which time all principal and interest will be due and payable if the Credit Facility is not extended by the revolving period end date), (iv) increase the interest rate margin to 3.00% during the revolving period and 3.50% thereafter, (v) update the SOFR credit spread adjustment to 10 basis points, and (vi) provide for certain excess concentration limits.

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 October 31, 2025.

On May 13, 2021, we, through Business Loan, entered into a sixth amended and restated credit agreement with KeyBank as administrative agent, lead arranger, managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto (the “Credit Facility”).

As of September 30, 2024, our Credit Facility had a total commitment amount of $ 293.7 million with an “accordion” feature that permits us to increase the size of the facility to $ 350.0 million.

The Credit Facility has a revolving period end date of October 31, 2025 and a final maturity date of October 31, 2027 (at which time all principal and interest will be due and payable if the Credit Facility is not extended by the revolving period end date).

The interest rate margin is 3.00% during the revolving period and 3.50% thereafter (in each case plus a 10 basis point SOFR credit spread adjustment).

Interest is payable monthly during the term of our Credit Facility.

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The 2028 Notes are traded under the ticker symbol “GLADZ” on the Nasdaq Global Select Market.

The 2028 Notes will mature on September 1, 2028 and may be redeemed in whole or in part at any time or from

time to time at our option on or after September 1, 2025.

The 2028 Notes will mature on September 1, 2028 and may be redeemed in whole or in part at any time or from time to time at our option on or after September 1, 2025.

The 2028 Notes bear interest at a rate of 7.75% per year.

Interest is payable quarterly on March 1, June 1, September 1, and December 1 of each year beginning December 1, 2023 (which equates to approximately $4.4 million per year).

Interest is payable quarterly on March 1, June 1, September 1, and December 1 of each year (which equates to approximately $4.4 million per year).

In November 2021, we completed a private placement of $50.0 million aggregate principal amount of 3.75% Notes due 2027 (the “2027 Notes”) for net proceeds of approximately $48.5 million after deducting initial purchasers’ costs, commissions and offering expenses borne by us.

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In April 2022, pursuant to the registration rights agreement we entered into in connection with the 2027 Notes, we conducted an exchange offer through which we offered to exchange all of our then outstanding 2027 Notes (the “Restricted Notes”) that were issued on November 4, 2021, for an equal aggregate principal amount of our new 3.75% Notes due 2027 (the “Exchange Notes”) that had been registered with the SEC under the Securities Act.

The terms of the Exchange Notes are identical to those of the Restricted Notes, except that the transfer restrictions and registration rights relating to the Restricted Notes do not apply to the Exchange Notes, and the Exchange Notes do not provide for the payment of additional interest in the event of a registration default.

The terms of the Exchange Notes

are identical to those of the Restricted Notes, except that the transfer restrictions and registration rights relating to the Restricted Notes do not apply to the Exchange Notes, and the Exchange Notes do not provide for the payment of additional interest in the event of a registration default.

In December 2020, we completed an offering of $100.0 million aggregate principal amount of 5.125% Notes due 2026 (the “2026 Notes”) for net proceeds of approximately $97.7 million after deducting underwriting discounts, commissions and offering expenses borne by us.

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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 September 30, 2023 and 2022 to be immaterial.

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 September 30, 2024 and 2023 to be immaterial.

The following table shows our contractual obligations as of September 30, 2024, at cost:

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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.

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.

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Lowest 3.0 3.0

The following table reflects the risk ratings for all syndicated loans in our portfolio that were not rated by an NRSRO as of September 30, 2023 and 2022, representing approximately 0.5% and 0.5%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:

As of September 30,

Rating 2023 2022

Highest 5.0 5.0

Average 5.0 5.0

The following table reflects the risk ratings for all syndicated loans in our portfolio that were not rated by an NRSRO as of September 30, 2023 representing approximately 0.5% of the principal balance of all debt investments in our portfolio at the end of the period:

Rating As of September 30, 2023

Weighted Average 5.0

Lowest 5.0 5.0

There were no syndicated loans in our portfolio that were not rated by an NRSRO as of September 30, 2024.

We intend to continue to maintain our qualification as a RIC under Subchapter M of the Code for federal income tax purposes and also to limit certain federal excise taxes imposed on RICs.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis