What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2020-11-10 compared with 2019-11-13 · 654 added, 682 removed, 503 unchanged (73% of the section changed)

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prices per share for the relevant quarter minus the NAV per share as of the end of such quarter, and therefore may not reflect the premium (discount) to NAV per share on the date of the high and low intraday sales prices.

Not yet available, as the NAV per share as of the end of this quarter has not yet been finalized.

Not yet available, as the NAV per share as of the end of this quarter has not yet been determined.

As of November 9, 2020, there were 33 record owners of our common stock.

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However, in certain cases, our Board of Directors may choose to distribute our net realized long-term capital gains, if any, by paying a one-time special distribution.

Additionally, our Credit Facility contains a covenant that limits distributions

to our stockholders on an annual basis to the sum of our net investment income, net capital gains and amounts deemed to have been paid during the prior year in accordance with Section 855(a) of the Code.

Additionally, our Credit Facility

contains a covenant that limits distributions to our stockholders on an annual basis to the sum of our net investment income, net capital gains and amounts deemed to have been paid during the prior year in accordance with Section 855(a) of the

Recent Sales of Unregistered Securities

We did not sell

any unregistered shares of stock during the fiscal year ended September 30, 2019.

did not sell any unregistered shares of stock during the fiscal year ended September 30, 2020.

Purchases of Equity Securities

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The following graph shows the

total stockholder return on an investment of $100 in cash on September 30, 2014 for (i) our common stock, (ii) the Nasdaqs 100 total return index (Nasdaq 100 TR), (iii) the Standard & Poors 500

total return index (the S&P 500 TR), and (iv) the Wells Fargo BDC Total Return index (WF BDC TR).

The graph and other information furnished under the heading Stock Performance Graph shall not be deemed to

be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference and shall not be deemed to be soliciting material or to be filed

total stockholder return on an investment of $100 in cash on September 30, 2015 for (i) our common stock, (ii) the Nasdaqs 100 total return index (Nasdaq 100 TR), (iii) the Standard & Poors 500 total

return index (the S&P 500 TR), and (iv) the Wells Fargo BDC Total Return index (WF BDC TR).

The graph and other information furnished under the heading Stock Performance Graph shall not be deemed to be

incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference and shall not be deemed to be soliciting material or to be filed

with the SEC or subject to Regulation 14A or 14C under, or to the liabilities of Section 18 of, the Exchange Act.

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The following table is intended to assist you in understanding the costs and expenses that an investor in the Company will bear directly or

We caution you that some of the percentages indicated in the table

below are estimates and may vary.

Except where the context suggests otherwise, whenever this Annual Report contains a reference to fees or expenses paid by us or the

Company, or that we will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in the Company.

The following annualized percentages were calculated based on actual expenses incurred in the

quarter ended September 30, 2019 and average net assets for the quarter ended September 30, 2019.

We caution you that some of the percentages indicated in the table below are estimates and may vary.

Except where the context suggests otherwise, whenever this Annual Report

contains a reference to fees or expenses paid by us or the Company, or that we will pay fees or expenses, stockholders will indirectly bear such fees or

expenses as investors in the Company.

The following annualized percentages were calculated based on actual expenses incurred in the quarter ended September 30, 2020 and average net assets for the quarter ended September 30, 2020.

Stockholder Transaction Expenses:

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Loan servicing fee (5)

Incentive fee (20% of realized capital gains and 20% of pre-incentive fee net investment income) (6)

Incentive fee (20% of realized capital gains and 20% of

pre-incentive fee net investment income) (6)

Interest payments on borrowed

Dividend expense on mandatorily redeemable preferred stock (8)

Other expenses (8)

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See Item 7.

Managements Discussion and Analysis

of Financial Condition and Results of OperationsLiquidity and Capital ResourcesDistributions and Dividends to StockholdersDividend Reinvestment Plan for information on the dividend reinvestment plan.

Management s

Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesDistributions and Dividends to StockholdersDividend Reinvestment Plan for information on the dividend reinvestment

The numbers presented in this table are before credits to any fees.

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September 30, 2020 by dividing the total dollar amount of the management fee by Gladstone Capitals average net assets.

The base management fee for the quarter ended September 30, 2019 before application of any credits was $1.8 million.

Under the Advisory Agreement, the Adviser has provided and continues to provide managerial assistance to our portfolio

The base management fee for the quarter ended September 30, 2020 before application of any credits was

$2.0 million.

Under the Advisory Agreement, the Adviser has provided and continues to provide managerial assistance

to our portfolio companies.

It may also provide services other than managerial assistance to our portfolio companies and receive fees therefor.

Such services may include, but are not limited to:

(i) assistance obtaining, sourcing or structuring credit

facilities, long term loans or additional equity from unaffiliated third parties;

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) primary role in interviewing, vetting and negotiating employment contracts with candidates in connection with adding and retaining

key portfolio company management team members.

Generally, at the end of each quarter, 100.0% of these fees are non-contractually, unconditionally and irrevocably credited against the base management fee that we would otherwise be required to pay to

however, a small percentage of certain of such fees, primarily for valuation of the portfolio company, is retained by the Adviser in the form of reimbursement at cost for certain tasks completed by personnel of the Adviser.

quarter ended September 30, 2019, the base management fee credit was $0.4 million.

BusinessTransactions with Related PartiesInvestment Advisory and Management Agreement for additional

The Adviser services, administers and collects on the loans held by Gladstone Business Loan, LLC

(Business Loan), in return for which the Adviser receives a 1.5% annual loan servicing fee payable monthly by Business Loan based on the monthly aggregate balance of loans held by Business Loan in accordance with our Fifth Amended and

Restated Credit Agreement, with KeyBank, as administrative agent, lead arranger and a lender, as amended (the Credit Facility).

For the three months ended September 30, 2019, the total loan servicing fee was $1.3 million.

entire loan servicing fee paid to the Adviser by Business Loan is generally non-contractually, unconditionally and irrevocably credited against the base management fee otherwise payable to the Adviser since Business Loan is a consolidated subsidiary

of the Company, and overall, the base management fee (including any loan servicing fee) cannot exceed 1.75% of total assets (as reduced by cash and cash equivalents pledged to creditors) during any given fiscal year pursuant to the Advisory

BusinessTransactions with Related PartiesLoan Servicing Fee Pursuant to Credit Facility and footnote 4 above for additional information.

(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) primary role in interviewing, vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio

company management team members.

Generally, at the end of each quarter, 100.0% of these fees are non-contractually, unconditionally

and irrevocably credited against the base management fee that we would otherwise be required to pay to the Adviser;

however, a small percentage of certain of such fees, primarily for valuation of

the portfolio company, is retained by the Adviser in the form of reimbursement at cost for certain tasks completed by personnel of the Adviser.

For the quarter ended September 30, 2020, the base management fee credit was $0.4 million.

Business Transactions with Related Parties Investment Advisory and Management Agreement for additional information.

The Adviser services, administers and collects on the loans held by Business Loan in return for which the

Adviser receives a 1.5% annual loan servicing fee payable monthly by Business Loan based on the monthly aggregate balance of loans held by Business Loan in accordance with the Credit Facility.

For the three months ended September 30, 2020, the

total loan servicing fee was $1.5 million.

The entire loan servicing fee paid to the Adviser by Business Loan is generally non-contractually, unconditionally and irrevocably credited against the base

management fee otherwise payable to the Adviser since Business Loan is a consolidated subsidiary of the Company, 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.

See Item 1.

BusinessTransactions with Related

PartiesLoan Servicing Fee Pursuant to Credit Facility and footnote 4 above for additional information.

In accordance with our Advisory Agreement, the incentive fee consists of two parts:

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capital gains-based fee.

The income-based fee is payable quarterly in arrears, and equals 20.0% of the excess, if any, of our pre-incentive fee net investment income that exceeds a 1.75% quarterly (7.0% annualized) hurdle rate of our net assets,

subject to a catch-up provision measured as of the end of each calendar quarter.

The catch-up provision requires us to pay 100.0% of our pre-incentive fee net investment income with respect to that portion of such income, if

any, that exceeds the hurdle rate but is less than 125.0% of the quarterly hurdle rate (or 2.1875%) in any calendar quarter (8.75% annualized).

The catch-up provision is meant to provide the Adviser with 20.0% of our pre-incentive fee net investment

income as if a hurdle rate did not apply when our pre-incentive fee net investment income exceeds 125.0% of the quarterly hurdle rate in any calendar quarter (8.75% annualized).

The income-based incentive fee is computed and paid on income that may

include interest that is accrued but not yet received in cash.

Our pre-incentive fee net investment income used to calculate this part of the income-based incentive fee is also included in the amount of our gross assets used to calculate the 1.75%

base management fee (see footnote 4 above).

The income-based fee is payable quarterly in arrears, and equals 20.0% of the excess, if any, of our pre-incentive fee net investment income that exceeds a 1.75% quarterly (7.0%

annualized) hurdle rate of our net assets (2.0% quarterly and 8.0% annualized during the one year period from April 1, 2020 through March 31, 2021), subject to a catch-up provision

measured as of the end of each calendar quarter.

The catch-up provision requires us to pay 100.0% of our pre-incentive fee net investment income with respect

to that portion of such income, if any, that exceeds the hurdle rate but is less than 125.0% of the quarterly hurdle rate (or 2.1875%, 2.4375% during the one year period from April 1, 2020 through March 31, 2021) in any calendar quarter

(8.75% annualized, 9.75% annualized during the one year period from April 1, 2020 through March 31, 2021).

The catch-up provision is meant to provide the Adviser with 20.0% of our pre-incentive fee net investment income as if a hurdle rate did not apply when our pre-incentive fee net investment income exceeds 125.0% of the quarterly hurdle rate in any

calendar quarter (8.75% annualized, 9.75% annualized during the one year period from April 1, 2020 through March 31, 2021).

The income-based incentive fee is computed and paid on income that may include interest that is accrued but not yet

received in cash.

Our pre-incentive fee net investment income used to calculate this part of the income-based incentive fee is also included in the amount of our gross assets used to calculate the 1.75% base

management fee (see footnote 4 above).

The capital gains-based incentive fee equals 20.0% of our net realized capital gains since our inception, if any, computed net of all realized capital losses and unrealized capital depreciation since our

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September 30, 2020 was $1.4 million.

From time to time, the Adviser has non-contractually, unconditionally and

irrevocably agreed to waive a portion of the incentive fees, to the extent net investment income did not cover 100.0% of the distributions to common stockholders during the period.

For the quarter ended September 30, 2019, the incentive fee

credit was $0.4 million.

From time to time, the Adviser has

non-contractually, unconditionally and irrevocably agreed to waive a portion of the incentive fees, to the extent net investment income did not cover 100.0% of the distributions to common stockholders during

For the quarter ended September 30, 2020, the incentive fee credit was $0.1 million.

There can be no guarantee that the Adviser will continue to credit any portion of the fees under the Advisory Agreement in the future.

Examples of how the incentive fee would be calculated are as follows:

Assuming pre-incentive fee net investment income of 0.55%, there would be no income-based incentive fee because

such income would not exceed the hurdle rate of 1.75%.

Assuming pre-incentive fee net investment income of 2.00%, the income-based incentive fee would be as follows:

Assuming pre-incentive fee net investment income of 0.55%, there would be

no income-based incentive fee because such income would not exceed the hurdle rate of 2.00%.

Assuming pre-incentive fee net investment income of 2.10%, the

income-based incentive fee would be as follows:

= 100% ×

(2.10% - 2.00%)

Assuming pre-incentive fee net investment income of 2.30%, the income-based incentive fee would be as follows:

Assuming pre-incentive fee net investment income of 2.50%, the

income-based incentive fee would be as follows:

= (100% ×

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0.4375%) + (20% ×

= 0.4375% + 0.0125%

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For a more detailed discussion of the calculation of the two-part incentive fee, see Item

BusinessTransactions with Related

PartiesInvestment Advisory and Management Agreement.

Business Transactions with Related Parties Investment Advisory and Management Agreement .

Includes amortization of deferred financing costs.

As of September 30, 2020, we had $128.0 million in

borrowings outstanding on our Credit Facility.

Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesRevolving Line of Credit for

additional information regarding the Credit Facility.

Includes amortization of deferred financing costs related to our Series 2024 Term Preferred Stock, as well as

amounts paid to preferred stockholders during the three months ended September 30, 2019.

borrowings outstanding on our Credit Facility and $93.9 million in notes payable, net.

See Item 7.

Management s Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital

ResourcesEquityTerm Preferred Stock for additional information.

ResourcesRevolving Line of Credit for additional information regarding the Credit Facility and Item 7.

Management s Discussion and Analysis of Financial Condition and Results of OperationsLiquidity

and Capital ResourcesNotes Payable for additional information regarding our notes payable.

Includes our overhead expenses, including payments under the Administration Agreement based on our projected

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(except as set forth in footnote 9), would be $33.9 million.

After all non-contractual, unconditional and irrevocable credits described in footnote 4, footnote 5, and footnote 6 above are applied to the base management fee, the loan servicing

fee, and the incentive fee, total annualized expenses after fee credits, based on actual amounts incurred for the quarter ended September 30, 2019, would be $25.4 million or 10.11% as a percentage of net assets.

The following examples

demonstrate the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock.

In calculating the following expense amounts, we have assumed we would

have no additional leverage and that our quarterly operating expenses would remain at the levels set forth in the table above and are gross of credits to any fees.

The amounts set forth below do not reflect the impact of sales load or offering

expenses to be borne by the Company or its stockholders.

In the prospectus supplement relating to an offering of securities pursuant to the applicable prospectus, the examples below will be restated to reflect the impact of the estimated offering

expenses borne by

the Company and its stockholders and, if applicable, the impact of the applicable sales load.

The examples below and the expenses in the table above should not be considered a

representation of our future expenses, and actual expenses (including the cost of debt, incentive fees, if any, and other expenses) may be greater or less than those shown.

While the example assumes, as required by the SEC, a 5% annual

return, our performance will vary and may result in a return greater or less than 5%.

After all non-contractual, unconditional and irrevocable credits described in footnote 4, footnote 5, and footnote 6 above are applied to the

base management fee, the loan servicing fee, and the incentive fee, total annualized expenses, based on actual amounts incurred for the quarter ended September 30, 2020, would be $25.9 million or 11.24% as a percentage of net assets.

following examples demonstrate the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock.

In calculating the following expense amounts, we have

assumed we would have no additional leverage and that our quarterly operating expenses would remain at the levels set forth in the table above and are gross of credits to any fees.

The amounts set forth below do not reflect the impact of sales load

or offering expenses to be borne by the Company or its stockholders.

In the prospectus supplement relating to an offering of securities pursuant to the applicable prospectus, the examples below will be restated to reflect the impact of the estimated

offering expenses borne by the Company and its stockholders and, if applicable, the impact of the applicable sales load.

The examples below and the expenses in the table above should not be considered a representation of our future

expenses, and actual expenses (including the cost of debt, incentive fees, if any, and other expenses) may be greater or less than those shown.

While the example assumes, as required by the

SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%.

You would pay the following expenses on a $1,000 investment:

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losses) on our investments.

Because the assumed 5% annual return is significantly below the hurdle rate of 7% (annualized) that we must achieve under the Advisory Agreement to trigger the payment of an income-based incentive fee, we have assumed,

for purposes of this example, that no income-based incentive fee would be payable if we realized a 5% annual return on our investments.

Because the assumed 5% annual return is significantly below the hurdle rate of 7% (annualized, 8% annualized during the one year period from April 1, 2020 through March 31, 2021) that we must achieve under the

Advisory Agreement to trigger the payment of an income-based incentive fee, we have assumed, for purposes of this example, that no income-based incentive fee would be payable if we realized a 5% annual return on our investments.

While the example assumes reinvestment of all dividends and distributions at NAV, participants in our dividend

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period beginning on or before the payment date of the distribution and ending when the plan agent has expended for such purchases all of the cash that would have been otherwise payable to participants.

dividend reinvestment plan.

See Item 7.

Management s Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesDistributions and Dividends to StockholdersDividend Reinvestment Plan for additional

information regarding our dividend reinvestment plan.

For purposes of this example, we have assumed that the entire amount of such 5% annual return would constitute

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Information about our senior securities is shown in the following table for the audited periods as of our last ten fiscal years.

information has been derived from our audited financial statements for each respective period, which have been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm.

PricewaterhouseCoopers LLPs report on the

senior securities table as of September 30, 2019 is attached as an exhibit to this Annual Report.

The information has been

derived from our audited financial statements for each respective period, which have been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm.

PricewaterhouseCoopers LLPs report on the senior securities

table as of September 30, 2020 is attached as an exhibit to this Annual Report.

Class and Year

Outstanding (1)

Preference per

Revolving Credit Facilities

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September 30, 2011

Series 2016 Term Preferred

September 30, 2019

September 30, 2018

September 30, 2017

September 30, 2016

September 30, 2015

September 30, 2014

September 30, 2013

Series 2016 Term Preferred Stock

September 30, 2013

Series 2021 Term Preferred

September 30, 2012

Series 2021 Term Preferred Stock

September 30, 2016

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September 30, 2014

Series 2024 Term Preferred Stock

September 30, 2019

September 30, 2018

Series 2024 Term Preferred

September 30, 2017

6.125% Notes due 2023

September 30, 2020

September 30, 2019

Series 2023 Notes Payable

5.375% Notes due 2024

September 30, 2020

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securities that are stock means the ratio of the value of our total assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness plus the

aggregate involuntary liquidation preference of a class of senior security that is

stock. Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness.

aggregate involuntary liquidation preference of a class of senior security that is stock. Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness.

The amount to which such class of senior security would be entitled upon the involuntary liquidation of the

issuer in preference to any security junior to it.

Only applicable to our Term Preferred Stock and 2023 Notes because the other senior securities are not

registered for public trading.

Average market value per unit is the average of the closing prices of the shares on the Nasdaq during the last 10 trading days of the period.

Average market value per unit for our Series 2024 Term Preferred Stock for

September 30, 2017 is the average of the closing prices of the shares on the Nasdaq during the last 7 trading days of the period as the stock started trading on September 21, 2017.

Only applicable to our Term Preferred Stock, 2023 Notes and 2024 Notes because the other senior securities are

not registered for public trading.

Average market value per unit is the average of the closing prices of the

securities on the Nasdaq during the last 10 trading days of the period.

Average market value per unit for our Series 2024 Term Preferred Stock for September 30, 2017 is the average of the

closing prices of the shares on the Nasdaq during the last seven trading days of the period as the stock started trading on September 21, 2017.

In November 2011, we issued 1,539,882 shares of 7.125% Series 2016 Term Preferred Stock (the Series 2016

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Net Investment Income

Net Realized and Unrealized (Loss) Gain

Net Realized and Unrealized Gain (Loss)

Net Increase in Net Assets Resulting from Operations

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Net Investment Income per Common ShareBasic and Diluted (A)

Net Increase in Net Assets Resulting from Operations per Common ShareBasic and Diluted (A)

Net Increase (Decrease) in Net Assets Resulting from Operations per Common ShareBasic and

Distributions Declared and Paid Per Common

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Mandatorily redeemable preferred

Notes payable

Per share data is based on the weighted average common stock outstanding for both basic and diluted.

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character of our distributions to common stockholders, please refer to Note 9 Distributions to Common Stockholders in the accompanying Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

See Managements Discussion and Analysis of Financial Condition and Results of Operations for

more information regarding our level of indebtedness.

See Managements Discussion and Analysis of Financial Condition and Results of

Operations for more information regarding our level of indebtedness.

Represents the total liquidation preference of our mandatorily redeemable term preferred stock.

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Proceeds from Loan Repayments, Investments Sold and Exits (A)

Weighted Average Yield on Investments, excluding loans on non-accrual status (B)

Weighted Average Yield on Investments, including loans on non-accrual status (C)

Weighted Average Yield on Investments, excluding loans on

non-accrual status (B)

Weighted Average Yield on Investments, including loans on

non-accrual status (C)

Total Return (D)

Includes non-cash reductions in cost basis.

Weighted average yield on investments, excluding loans on non-accrual status, equals interest income on

investments divided by the weighted average interest-bearing principal balance throughout the fiscal year.

Weighted average yield on investments, including loans on non-accrual status, equals interest income on

investments divided by the weighted average total principal balance throughout the fiscal year.

Weighted average yield on investments, excluding loans on non-accrual

status, equals interest income on investments divided by the weighted average interest-bearing principal balance throughout the fiscal year.

Weighted average yield on investments, including loans on non-accrual

status, equals interest income on investments divided by the weighted average total principal balance throughout the fiscal year.

Total return equals the change in the ending market value of our common stock from the beginning of the fiscal

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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.

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

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 September 30, 2019, our investment

portfolio was made up of approximately 90.7% debt investments and 9.3% equity investments, at cost.

We focus on investing in lower middle market

companies (which we generally define as companies with annual EBITDA of $3 million to $15 million) in the U.S.

that meet certain criteria, including, but not limited to, 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 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 companies 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, 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.

As of September 30, 2020, our investment portfolio was made up of approximately 91.3% debt investments and 8.7% equity investments,

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.

ourselves or jointly with other funds and/or management of the portfolio company, depending on the opportunity, and have opportunistically made several co-investments with our affiliate Gladstone Investment, a BDC also managed by our Adviser,

pursuant to an exemptive order granted by the SEC.

We believe this ability to co-invest 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 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 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, whether or not an affiliate of ours, our investment is likely to be smaller than if we were investing alone.

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 one-month 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.

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 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.

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 PIK interest.

Typically, our equity investments consist of common stock, preferred stock, limited liability company interests, or warrants to purchase the foregoing.

these equity investments occur in connection with our original investment, recapitalizing a business, or refinancing existing debt.

During the year ended

September 30, 2019, we invested $124.2 million in 13 new portfolio companies and extended $22.9 million of investments to existing portfolio companies.

In addition, during the year ended September 30, 2019, we exited ten portfolio

companies through sales and early payoffs.

We received a total of $131.1 million in combined net proceeds and principal repayments from the aforementioned portfolio company exits as well as existing portfolio companies during the year ended

Often, these equity investments occur in connection with our original investment, recapitalizing a business, or refinancing existing debt.

year ended September 30, 2020, we invested $131.2 million in six new portfolio companies and extended $18.8 million in investments to existing portfolio companies.

In addition, during the year ended September 30, 2020, we exited

eleven portfolio companies through early payoffs or a restructure.

We received a total of $78.8 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 year ended September 30, 2020.

This activity resulted in a net decrease in our overall portfolio by five portfolio companies to 48 and a net increase of $66.2 million in our portfolio at cost since

September 30, 2019.

This activity resulted in a net increase in our overall portfolio by three portfolio companies to 53 and a net increase of $1.0 million in our portfolio at cost since September 30, 2018.

From our initial public offering

in August 2001 through September 30, 2019, we have made 532 different loans to, or investments in, 240 companies for a total of approximately $1.9 billion, before giving effect to principal repayments on investments and divestitures.

From our initial public offering in August 2001 through September 30, 2020, we have made 553 different loans to, or investments in, 246 companies for a total of approximately $2.1 billion, before giving effect to

principal repayments on investments and divestitures.

During the year ended September 30, 2020, the following significant transactions occurred:

Proprietary Investments

In October 2018, our investment in TWS Acquisition Corporation paid off at par for net proceeds of $2.0 million.

In November 2018, we invested $16.7 million in Antenna Research Associates, Inc.

through a combination of secured

first lien debt and equity.

In December 2018, we invested $20.0 million in R2i Holdings, LLC through secured first lien debt.

In December 2018, we invested $6.5 million in DKI Ventures, LLC through secured first lien debt.

In December 2018, our investment in Francis Drilling Fluids, Ltd.

(FDF) was restructured upon its

emergence from Chapter 11 bankruptcy protection.

As part of the restructure, our existing $27.0 million debt investment in FDF was converted to $1.35 million of preferred equity and common equity units in a new entity, FES Resources Holdings,

LLC (FES Resources).

We also invested an additional $5.0 million in FES Resources through a combination of preferred equity and common equity units.

In conjunction with the restructure, we recorded a net realized loss of $26.9 million

associated with our investment in FDF.

In January 2019, our investment in Merlin International, Inc.

paid off, which resulted in success fee income of

$0.6 million and a prepayment fee of $0.3 million.

In connection with the payoff, we received net cash proceeds of $20.9 million, including the repayment of our debt investment of $20.0 million at par.

In February 2019, our investment in United Flexible, Inc.

paid off, which resulted in a realized gain of $2.1

In connection with the payoff, we received net cash proceeds of $18.1 million, including the repayment of our debt investment of $15.3 million at par.

In March 2019, two of our portfolio companies, Impact!

Chemical Technologies, Inc.

(Impact) and

WadeCo Specialties, Inc.

(WadeCo), merged to form Imperative Holdings Corporation (Imperative).

In connection with the merger, we received a principal repayment of $10.9 million and our first lien loans to Impact and WadeCo

were restructured into one $30.0 million second lien debt investment in Imperative.

In April 2019, we invested $35.0 million in ENET Holdings, LLC through secured first lien debt.

In May 2019, we

sold $6.0 million of our investment in ENET Holdings, LLC.

In May 2019, we invested $10.0 million in Phoenix Aromas Holdings, LLC through secured second lien debt.

In May 2019, one of our fund investments, FedCap Partners, LLC, sold its final investment.

We received net cash

proceeds of $0.6 million and recognized a realized loss of $0.8 million.

In May 2019, our investment in IA Tech, LLC paid off, which resulted in a prepayment fee of $0.9 million.

connection with the payoff, we received net cash proceeds of $30.9 million, including the repayment of our debt investment of $30.0 million at par.

In July 2019, our debt investment in PIC 360, LLC was paid off at par for net proceeds of $2.6 million.

In August 2019, we invested $13.0 million in Prophet Brand Strategy through secured second lien debt.

In August 2019, we invested an additional $5.0 million in Sea Link International IRB, Inc, an existing portfolio

company, through secured second lien debt.

In August 2019, we sold our investment in Alloy Die Casting Co (ADC), which resulted in success fee

income of $0.8 million and a realized gain of approximately $8.7 million.

In connection with the sale, we received net cash proceeds of approximately $18.3 million, including the repayment of our debt investment of $5.7 million at par.

In September 2019, we invested an additional $6.2 million in EL Academies Inc., an existing portfolio company,

In October 2019, we invested $14.0 million in Universal Survey Center, Inc.

through secured first lien debt.

Syndicated Investments

In October, November and December 2018, we invested a total of $3.7 million in 8 th Avenue Food & Provisions, Inc.

through secured second lien debt.

In November 2018, we invested $2.0 million in GOBP Holdings, Inc.

through secured second lien debt.

In November 2018, our investment in Red Ventures, LLC paid off at par for net proceeds of $3.1 million.

In December 2018, we invested $1.0 million in CPM Holdings, Inc.

In December 2019, we invested $24.0 million in Café

Zupas through secured first lien debt.

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 July 2020, we sold $6.0 million of our debt investment in Lignetics, Inc.

In January 2020, we sold our investment in The Mochi Ice Cream Company (Mochi), 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.

(Meridian), with a

fair value of $0 as of December 31, 2019 and recorded a realized loss of $5.6 million.

In February 2020, we invested $19.0 million in American Trailer Rental Group LLC through a combination of

secured second lien debt and common equity.

In March 2020, our investments in XMedius America, Inc.

and XMedius Solutions Inc.

paid off at par for combined

net proceeds of $14.9 million.

In May 2020, we invested $30.0 million in Magpul Industries Corp.

through secured second lien debt.

In February 2019, we invested $3.3 million in DiscoverOrg, LLC through secured second lien debt.

In April 2019, we invested $5.0 million in Drive Chassis Holdco, LLC through secured second lien debt.

In June 2019, we invested $5.0 million in Tailwind Smith Cooper Intermediate Corporation through secured second

In June 2019, we invested $3.0 million in United PF Holdings, LLC through secured second lien debt.

In June 2019, our investment in GOBP Holdings, Inc.

In May 2020, we invested $23.5 million in ALS Education, LLC through secured first lien debt.

In May 2020, we sold our investment in Travel Sentry, Inc.

for net proceeds of $6.1 million, which resulted

in a $0.1 million realized loss.

In May 2020, our debt investment in Canopy Safety Brands, LLC paid off at par for net proceeds of

$3.8 million.

In July 2020, our investment in Universal Survey Center, Inc.

paid off at par for net proceeds of

$14.1 million.

In conjunction with the payoff, we received a prepayment fee of $0.3 million.

In August 2020, we invested $20.7 million in Aerospace Engineering, LLC through secured first lien debt.

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.

Refer to Note 15 Subsequent Events in the accompanying Consolidated Financial Statements included elsewhere in this

Annual Report for portfolio activity occurring subsequent to September 30, 2019.

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.

In June 2020, our investment in DiscoverOrg, LLC paid off at par for net proceeds of $3.3 million.

conjunction with the payoff, we received a prepayment fee of $33 thousand.

Refer to Note 15 Subsequent Events in the

accompanying Consolidated Financial Statements included elsewhere in this Annual Report for portfolio activity occurring subsequent to September 30, 2020.

Capital Raising

We have been able to meet our capital needs through extensions of and increases to the 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 Facilitys revolving period multiple times, most

recently to January 2021, and currently have a total commitment amount of $190.0 million.

We sold 1,843,943 and 2,341,296 common shares under our at-the-market program during the years ended

September 30, 2019 and 2018, respectively.

Additionally, we completed a public debt offering of $57.5 million aggregate principal amount of the 2023 Notes, inclusive of the overallotment in November 2018.

Most recently, in October 2019, we

completed a public debt offering of $38.8 million aggregate principal amount of 2024 Notes, inclusive of the overallotment.

Refer to Liquidity and Capital ResourcesEquityCommon Stock and Liquidity and Capital

ResourcesEquityTerm Preferred Stock for further discussion of our common stock and mandatorily redeemable preferred stock and Liquidity and Capital ResourcesRevolving Credit Facility for further

discussion of the Credit Facility.

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 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 September 30, 2019, the closing market price

of our common stock was $9.75, an 18.6% premium to our September 30, 2019 NAV per share of $8.22.

Refer to Note 15 Subsequent Events in

the notes to the Consolidated Financial Statements included elsewhere in this Annual Report for a discussion of additional capital raised in connection with issuance of the 2024 Notes.

We have been able to meet our

capital needs through extensions of and increases to our line of credit under the Credit Facility and by accessing the capital markets in the form of public equity offerings of common stock and public debt offerings.

We have successfully extended

the Credit Facilitys revolving period multiple times, most recently to July 2021, and currently have a total commitment amount of $180.0 million.

We sold 1,220,927 and 1,843,943 common shares under our at-the-market program during the years ended September 30, 2020 and 2019, respectively.

In October 2019, we completed a public debt offering of $38.8 million aggregate principal amount of the 2024

Notes, inclusive of the overallotment.

Additionally, we completed a public debt offering of $57.5 million aggregate principal amount of our 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, market conditions, including the impact of COVID-19 and the results of the election, may continue to affect the trading price of our capital stock and thus may inhibit our ability to finance new investments through the issuance of equity.

common stock trades below NAV per common share, as it has done periodically since March 2020, 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 September 30, 2020, the closing market price of our common stock was $7.41 per share, a 0.1% premium to our September 30, 2020 NAV per share of

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.

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.

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

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

As of September 30, 2019, our asset coverage on our senior securities representing indebtedness was 336.9% and our asset coverage on our

senior securities that are stock was 238.5%.

As of September 30, 2020, our asset coverage on our senior securities representing indebtedness was 202.6%.

Recent Developments

Series 2024 Term Preferred Stock

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.

Debt Offering

In October 2019, we completed a

public debt offering of $38.8 million aggregate principal amount of the 2024 Notes, inclusive of the overallotment, for net proceeds of approximately $37.5 million after deducting

underwriting discounts, commissions and offering expenses borne by us.

The 2024 Notes will mature on November 1, 2024, and may be redeemed in whole or in part at any time or from time to

time at the Companys option on or after November 1, 2021.

The 2024 Notes are traded under the ticker symbol GLADL on Nasdaq.

Distributions

On October 8, 2019, our Board

of Directors declared the following monthly cash distributions to common stockholders:

In October 2020, our Board of Directors declared the following monthly cash distributions to common stockholders:

October 23, 2020

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Total for the Quarter

Portfolio and Investment Activity

In October 2019, we invested $14.0 million in Universal Survey Center, Inc.

through secured first lien debt.

In October 2019, our debt investment in DigiCert Holdings, Inc.

was repaid at par for net proceeds of $2.4 million.

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

LIBOR Transition

In general, our investments in debt securities have a term of five years, accrue interest at variable rates (based on the

30-day LIBOR) and, to a lesser extent, at fixed rates.

LIBOR is currently anticipated to be phased out during late 2021.

LIBOR may transition to a new standard rate, the SOFR, which will incorporate certain

overnight repo market data collected from multiple data sets.

To attain an equivalent 30-day 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 and may also need to renegotiate certain provisions of the Credit Facility.

Assuming that SOFR replaces LIBOR and is appropriately adjusted to equate to 30-day LIBOR, we expect that there should be minimal impact on our operations.

We continue to monitor and work with the management teams and shareholders of our portfolio companies to navigate the significant market, operational and

economic challenges created by the COVID-19 pandemic.

The Companys investment portfolio continues to be focused on a diversified mix of industries and sectors that are generally expected to be more

durable than industries or sectors that are more prone to economic cycles including consumer or retail industries.

We believe our portfolio companies have taken immediate actions to effectively and efficiently respond to the challenges posed by COVID-19 and related orders imposed by state and local governments including paused or reversed reopening orders, including developing liquidity plans supported by internal cash reserves, shareholder support, and as

appropriate accessing the government Paycheck Protection Program.

We believe we have sufficient levels of liquidity to support our existing portfolio companies, as necessary, and selectively deploy capital in new investment opportunities.

RESULTS OF OPERATIONS

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Dividend expense on mandatorily redeemable preferred stock

Amortization of deferred financing fees

Amortization of deferred financing costs

Other expenses

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Net loss from investments and other

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

PER BASIC AND DILUTED COMMON SHARE

Net investment income

Net increase in net assets resulting from operations

Net increase (decrease) in net assets resulting from operations

NM not meaningful

Investment Income

Interest income increased by 4.1% for the year ended September 30, 2019, as compared to the prior year.

This increase was primarily due to an increase in

the weighted average yield on our interest-bearing portfolio.

The weighted average yield on our interest-bearing investments is based on the current stated interest rates on interest-bearing investments which increased to 12.3% for the year ended

September 30, 2019 compared to

11.8% for the year ended September 30, 2018, inclusive of any allowances on interest receivables made during those periods.

The increase in the weighted average yield was partially driven by

the receipt and recognition of $0.9 million of past due interest upon the exit of our investment in ADC in August 2019.

The weighted average principal

balance of our interest-bearing investment portfolio remained relatively flat for the year ended September 30, 2019, compared to the prior year.

of September 30, 2019, two portfolio companies, Meridian Rack & Pinion, Inc.

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.

As of September 30, 2018, one portfolio company, FDF was on non-accrual status, with an aggregate debt cost basis of approximately $26.9 million, or 6.9% of the cost basis of all debt investments in our

Other income increased by 162.9% during the year ended September 30, 2019, as compared to the prior year, primarily due to an increase in

success fees and prepayment penalties received.

For the year ended September 30, 2019, other income consisted primarily of $1.9 million in success fees recognized, $1.2 million in prepayment fees received, and $1.1 million in dividend income.

For the year ended September 30, 2018, other income consisted primarily of $0.6 million in prepayment fees received, $0.5 million in dividend income, and $0.4 million in success fees recognized.

As of September 30, 2019 and 2018, 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 $3.0 million, or 13.2%, for the year ended September 30, 2019 as compared to the prior year period.

This increase was primarily due to a $2.2 million increase in interest

expense on borrowings.

Interest expense increased by 37.2% during the year ended September 30, 2019, as compared to the prior year, primarily due to

the issuance of $57.5 million aggregate principal amount of the 2023 Notes in November 2018 and an increase in the effective interest rate on our Credit Facility.

We incurred $3.2 million in interest expense related to the 2023 Notes during the year

ended September 30, 2019 versus no such amounts in the prior year period.

The weighted average balance outstanding on our Credit Facility decreased during the year ended September 30, 2019 compared to the prior year period with the

issuance of the 2023 Notes.

The weighted average balance outstanding during the year ended September 30, 2019, was $71.5 million, as compared to $114.7 million in the prior year, a decrease of 37.7%.

The effective interest rate on our Credit

Facility, including unused commitment fees incurred but excluding the impact of deferred financing costs, was 6.8% during the year ended September 30, 2019, compared to 5.1% during the prior year.

The increase in the effective interest rate was

driven by an increase in LIBOR as compared to the prior year period and an increase in unused commitment fees paid in the current year period, partially offset by a decrease in the marginal interest rate on our Credit Facility effective

March 9, 2018.

The net base management fee earned by the Adviser decreased by $0.3 million, or 5.6%, during the year ended September 30, 2019,

as compared to the prior year, resulting primarily from an increase in credits from the Adviser year over year, which are driven mainly by origination fees on new deals closed during the year.

The net income-based incentive fee increased by $0.6 million, or 17.4%, for the year ended September 30, 2019, as compared to the prior year, due to

higher pre-incentive fee net investment income, partially offset by an increase in net assets, which drives the hurdle rate, over the prior year.

Our Board of Directors accepted a non-contractual, unconditional and irrevocable credit from the

Adviser of $1.5 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 year ended September 30, 2019.

The credit granted during the year

ended September 30, 2018, totaled $1.7 million.

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 accompanying Notes to Consolidated Financial Statements and are summarized in

the following table:

Interest income increased by

0.6% for the year ended September 30, 2020, as compared to the prior year.

The increase was due primarily to an increase in the weighted average principal balance of our interest-bearing portfolio, partially offset by a decrease in the weighted

average yield on 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 11.0% for the year ended

September 30, 2020, compared to 12.3% for

the year ended September 30, 2019, 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 years.

The weighted average principal balance of our interest-bearing investment portfolio for the year ended September 30, 2020, was $418.0 million, compared to $373.7 million for the year ended September 30, 2019, an

increase of $44.3 million, or 11.9%.

As of September 30, 2020, loans to one portfolio company, B+T Group Acquisition Inc.

were on non-accrual status, with an aggregate debt cost basis of approximately $7.2 million, or 1.6% of the cost basis of all debt investments in our portfolio.

As of September 30, 2019, loans to two

portfolio companies, Meridian and New Trident, 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

Other income decreased by 54.6% during the year ended September 30, 2020, as compared to the prior year period primarily due to a

$1.6 million decrease in success fees received year over year and a $0.7 million decrease in prepayment fees received year over year.

of September 30, 2020 and 2019, 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, decreased $2.7 million, or 10.4%, for the year ended September 30, 2020 as compared to the prior year.

This decrease was

primarily due to a $3.1 million decrease in preferred dividend expense due to the redemption of our Series 2024 Term Preferred Stock in October 2019 and a $1.6 million increase in credits to fees from the Adviser, partially offset by a

$2.0 million increase in interest expense on borrowings and notes payable.

Interest expense increased by 24.3% during the year ended

September 30, 2020, as compared to the prior year, due primarily to the issuance of $38.8 million aggregate principal amount of the 2024 Notes in October 2019.

We incurred $2.0 million in interest expense related to the 2024 Notes

issuance during the year ended September 30, 2020 versus no such amounts in the prior year period.

The weighted average balance outstanding on our

Credit Facility during the year ended September 30, 2020 was $103.5 million, as compared to $71.5 million in the prior year, an increase of 44.7%.

The effective interest rate on our Credit Facility, including unused commitment fees

incurred but excluding the impact of deferred financing costs, was 4.3% during the year ended September 30, 2020, compared to 6.8% during the prior year.

The decrease in the effective interest rate was driven primarily by a decrease in LIBOR

and a decrease in unused commitment fees as compared to the prior year period.

Interest expense on our Credit Facility decreased by $0.4 million period over period as the decrease in the effective interest rate more than offset the increase in

the weighted average balance outstanding on our Credit Facility.

The net base management fee earned by the Adviser increased by $0.2 million, or

4.5%, during the year ended September 30, 2020, as compared to the prior year, resulting from an increase in average total assets subject to the base management fee period over period.

The income-based incentive fee decreased by $0.5 million, or 9.1%, for the year ended September 30, 2020, as compared to the prior year, due to

lower pre-incentive fee net investment income over the respective periods and the change to the incentive fee hurdles effective April 1, 2020 as described under Transactions with the

Adviser in Note 4 Related Party Transactions of the Notes to Consolidated Financial Statements .

Our Board of Directors accepted non-contractual, unconditional and irrevocable

credits from the Adviser of $3.0 million and $1.5 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 years ended

September 30, 2020 and 2019, 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

Related Party Transactions of the Notes to Consolidated Financial Statements and are summarized in the following table:

Year Ended September 30,

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For the year ended

September 30, 2019, we recorded a net realized loss on investments of $16.4 million, which resulted primarily from the restructuring of our investment in FDF in December 2018 and the associated recognition of a $26.9 million net realized loss,

partially offset by the sale of our investment in ADC in August 2019 for an $8.7 million realized gain.

For the year ended September 30, 2018, we

recorded a net realized loss on investments of $26.1 million, which resulted primarily from the restructure of our investment in Sunshine Media Holdings (Sunshine), previously on non-accrual status, and the associated recognition of a

$28.2 million realized loss.

This was partially offset by a $0.7 million realized gain from the sale of a portion of our equity investment in Funko Acquisition Holdings, LLC (Funko) and a $0.6 million realized gain associated with the

sale of our investment in Flight Fit N Fun LLC.

September 30, 2020, we recorded a net realized loss on investments of $7.5 million, which resulted primarily from the sale of our investment in Meridian in January 2020 for a $5.6 million realized loss and the loss recognized on our

investment in New Trident of $4.4 million in December 2019, partially offset by a realized gain of $2.5 million from the sale of our investment in Mochi in January 2020.

For the year ended September 30, 2019, we recorded a net realized loss on investments of $16.4 million, which resulted primarily from the

restructuring of our investment in Francis Drilling Fluids, Ltd.

(FDF) in December 2018 and the associated recognition of a $26.9 million net realized loss, partially offset by the sale of our investment in Alloy Die Casting Co

(ADC) in August 2019 for an $8.7 million realized gain.

Net Unrealized Appreciation of Investments

During the year ended September 30, 2019, we recorded net unrealized appreciation of investments in the aggregate amount of $11.8 million.

During the year ended September 30, 2020, we recorded net unrealized depreciation of investments in the aggregate amount of $18.7 million.

realized gain (loss) and unrealized appreciation (depreciation) across our investments for the year ended September 30, 2020 were as follows:

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(Appreciation)

Vertellus Holdings LLC

Lignetics, Inc.

The Mochi Ice Cream Company

Antenna Research Associates, Inc.

Leeds Novamark Capital I, L.P.

Vacation Rental Pros Property Management, LLC

New Trident Holdcorp, Inc.

DiscoverOrg, LLC

Travel Sentry, Inc.

Meridian Rack & Pinion, Inc.

Targus Cayman HoldCo, Ltd.

Precision International, LLC

Canopy Safety Brands, LLC

R2i Holdings, LLC

CHA Holdings, Inc.

Medical Solutions Holdings, Inc.

EL Academies, Inc.

Keystone Acquisition Corp.

Triple H Food Processors, LLC

Tailwind Smith Cooper Intermediate Corporation

B+T Group Acquisition Inc.

DKI Ventures, LLC

LWO Acquisitions Company LLC

Sea Link International IRB, Inc.

NetFortris Corp.

Edge Adhesives Holdings, Inc.

FES Resources Holdings LLC

Defiance Integrated Technologies, Inc.

Imperative Holdings Corporation

ENET Holdings, LLC

Other, net (<$250)

Since March 2020, the U.S.

loan market has exhibited a heightened level of volatility and wider credit spreads associated with

the uncertainty and potentially adverse economic ramifications of the spread of COVID-19.

The combination of the marked increase in market spreads for comparable loan investments and discounts applied to any

portfolio company whose markets, or operations have been impacted by the COVID-19 pandemic, were the primary drivers of net unrealized depreciation of investments of $18.7 million for year ended

September 30, 2020.

The decreased performance of certain of our portfolio companies, a decrease in comparable multiples used to estimate the fair value of certain of our portfolio companies, and the reversal of previously recorded unrealized

appreciation of Mochi upon exit, partially offset by the reversal of previously recorded unrealized depreciation upon the exit of Meridian and New Trident also impacted the total net unrealized depreciation.

During the year ended September 30, 2019, we recorded net unrealized appreciation of investments in the

aggregate amount of $11.8 million.

The net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the year ended September 30, 2019 were as follows:

Year Ended September 30, 2019

Portfolio Company

Realized Gain

(Depreciation)

(Appreciation)

Alloy Die Casting Co.

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Other, net (<$250)

The largest driver of our net unrealized appreciation of $11.8 million for the year ended September 30, 2019

was the reversal of previously recorded unrealized depreciation upon the restructure of FDF.

This appreciation was partially offset by the decline in the valuation of LWO Acquisitions Company LLC due to its financial and operational performance.

During the year ended September 30, 2018, we recorded net unrealized appreciation of investments in the aggregate amount of $21.6 million.

realized gain (loss) and unrealized appreciation (depreciation) across our investments for the year ended September 30, 2018 were as follows:

Year Ended September 30, 2018

Portfolio Company

Realized Gain

(Depreciation)

(Appreciation)

Edge Adhesives Holdings, Inc.

United Flexible, Inc.

Alloy Die Casting Co.

AG Transportation Holdings, LLC

Targus Cayman HoldCo, Ltd.

Funko Acquisition Holdings, LLC

Sea Link International IRB, Inc.

Leeds Novamark Capital I, L.P.

Merlin International, Inc.

WadeCo Specialties, Inc.

EL Academies, Inc.

Precision International, LLC

RBC Acquisition Corp.

Triple H Food Processors, LLC

Canopy Safety Brands, LLC

Flight Fit N Fun LLC

HB Capital Resources, Ltd.

Vision Government Solutions, Inc.

Frontier Financial Group, Inc.

GFRC Holdings, LLC

Meridian Rack & Pinion, Inc.

Vacation Rental Pros Property Management, LLC

Defiance Integrated Technologies, Inc.

Sunshine Media Holdings

Arc Drilling Holding LLC

New Trident Holdcorp, Inc.

LWO Acquisitions Company, LLC

Francis Drilling Fluids, Ltd.

Other, net (<$250)

The primary drivers of our net unrealized appreciation for the year ended September 30, 2018, were the reversal of

previously recorded depreciation on our investment in Sunshine upon restructure and improved performance on certain of our portfolio companies, namely Edge Adhesives Holdings, Inc.

These factors were partially offset by a decline in performance of

certain of our other portfolio companies, namely FDF.

As of September 30, 2019, the fair value of our investment portfolio was less than its cost basis by

approximately $25.6 million and our entire investment portfolio was valued at 94.0% of cost, as compared to cumulative net unrealized depreciation of $37.4 million and a valuation of our entire portfolio at 91.2% of cost as of September 30,

This year over year decrease in the cumulative unrealized depreciation on investments represents net unrealized appreciation of $11.8 million for the year ended September 30, 2019.

The largest driver of our net unrealized appreciation of $11.8 million for the year ended September 30, 2019 was the

reversal of previously recorded unrealized depreciation upon the restructure of FDF.

This appreciation was

partially offset by the decline in the valuation of LWO Acquisitions Company LLC due to its financial and operational performance.

As of September 30, 2020, the fair value of our investment portfolio was less than its cost basis by approximately $44.3 million and our entire

investment portfolio was valued at 91.1% of cost, as compared to cumulative net unrealized depreciation of $25.6 million and a valuation of our entire portfolio at 94.0% of cost as of September 30, 2019.

This year over year increase in the

cumulative unrealized depreciation on investments represents net unrealized depreciation of $18.7 million for the year ended September 30, 2020.

The cumulative net unrealized depreciation of our investments does not have an impact on our current ability to pay distributions to stockholders;

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(Appreciation) Depreciation of Other

During the year ended September 30, 2019, we recorded $0.2 million of unrealized depreciation on our Credit

Facility at fair value as compared to $0.1 million of unrealized appreciation during the year ended September 30, 2018.

Comparison of the Year

Ended September 30, 2018 to the Year Ended September 30, 2017

During the year ended September 30, 2020, we recorded $0.5 million of unrealized appreciation on our

Credit Facility at fair value as compared to $0.2 million of unrealized depreciation during the year ended September 30, 2019.

of the Year Ended September 30, 2019 to the Year Ended September 30, 2018

For the Year Ended September 30,

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Dividend expense on mandatorily redeemable preferred stock

Amortization of deferred financing fees

Amortization of deferred financing costs

Other expenses

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This increase was primarily due to an increase in

the weighted average balance outstanding on our interest-bearing portfolio and an increase in the weighted average yield on our interest-bearing portfolio.

The weighted average principal balance of our interest-bearing investment portfolio during

the year ended September 30, 2018, was $372.2 million, compared to $320.1 million for the prior year, an increase of $52.1 million, or 16.3%.

The weighted average yield on our interest-bearing investments is based on the current stated interest

rates on interest-bearing investments which increased to 11.8% for the year ended September 30, 2018 compared to 11.6% for the year ended September 30, 2017, inclusive of any allowances on interest receivables made during those periods.

As of September 30, 2018, one portfolio company, FDF, was on non-accrual status, with an aggregate debt cost basis of approximately $26.9 million,

or 6.9% of the cost basis of all debt investments in our portfolio.

As of September 30, 2017, two portfolio companies, Sunshine and ADC, were on non-accrual status, with an aggregate debt cost basis of approximately $27.9 million, or 7.5% of

the cost basis of all debt investments in our portfolio.

Other income decreased by 24.9% during the year ended September 30, 2018, as compared to

the prior year.

This decrease was primarily due to a $1.1 million decrease in success fees recognized year over year.

For the year ended September 30, 2018, other income consisted primarily of $0.6 million in prepayment fees received, $0.5

million in dividend income, and $0.4 million in success fees recognized.

For the year ended September 30, 2017, other income consisted primarily of $1.5 million in success fees recognized, $0.3 million in dividend income, and $0.3 million in

prepayment fees received.

As of September 30, 2018 and 2017, no single investment represented greater than 10% of the total investment

portfolio at fair value.

net of any non-contractual, unconditional and irrevocable credits to fees from the Adviser, increased $4.7 million, or 26.4%, for the year ended September 30, 2018 as compared to the prior year.

This increase was primarily due to a $2.9 million

increase in our net base management and incentive fees to the Adviser and a $2.8 million increase in interest expense on borrowings, partially offset by a $1.0 million decrease in dividend expense on mandatorily redeemable preferred stock.

Interest expense increased by 90.6% during the year ended September 30, 2018, as compared to the prior year, primarily due to an increase in the weighted

average balance outstanding on our Credit Facility.

The weighted average balance outstanding during the year ended September 30, 2018, was $114.7 million, as compared to $58.4 million in the prior year, an increase of 96.4%.

The effective

interest rate on our Credit Facility, including unused commitment fees incurred but excluding the impact of deferred financing costs, was 5.1% during the year ended September 30, 2018, compared to 5.3% during the prior year.

The decrease in the

effective interest rate was driven by a decrease in the marginal interest rate on our Credit Facility effective March 9, 2018 and a decrease in unused commitment fees paid in the current year due to a greater amount outstanding on the Credit

These factors were partially offset by an increase in LIBOR as compared to the prior year.

The net base management fee earned by the Adviser

increased by $1.7 million, or 42.2%, during the year ended September 30, 2018, 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 from the Adviser year

The net income-based incentive fee increased by $1.2 million, or 48.3%, for the year ended September 30, 2018, as compared to the prior

year, due to higher pre-incentive fee net investment income, partially offset by an increase in net assets, which drives the hurdle rate, over the prior year.

Our Board of Directors accepted a non-

contractual, unconditional and irrevocable credit from the Adviser of $1.7 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 year ended September 30, 2018.

the weighted average yield on our interest-bearing portfolio.

The weighted average yield on our interest-bearing investments is based on the current stated interest rates on interest-bearing investments which increased to 12.3% for the year ended

September 30, 2019 compared to 11.8% for the year ended September 30, 2018, inclusive of any allowances on interest receivables made during those periods.

The increase in the weighted average yield was partially driven by the receipt and

recognition of $0.9 million of past due interest upon the exit of our investment in ADC in August 2019.

The weighted average principal balance of

our interest-bearing investment portfolio remained relatively flat for the year ended September 30, 2019, compared to the prior year.

September 30, 2019, two portfolio companies, Meridian and Trident, 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.

As of September 30, 2018, one portfolio company, FDF was on non-accrual status, with an aggregate debt cost basis of approximately $26.9 million, or 6.9% of the cost

basis of all debt investments in our portfolio.

Other income increased by 162.9% during the year ended September 30, 2019, as compared to the prior

year, primarily due to an increase in success fees and prepayment penalties received.

For the year ended September 30, 2019, other income consisted primarily of $1.9 million in success fees recognized, $1.2 million in prepayment fees

received, and $1.1 million in dividend income.

For the year ended September 30, 2018, other income consisted primarily of $0.6 million in prepayment fees received, $0.5 million in dividend income, and $0.4 million in success

fees recognized.

As of September 30, 2019 and 2018, no single investment represented greater than 10% of the total investment portfolio at fair

Expenses, net of any non-contractual, unconditional and irrevocable credits to fees from the Adviser, increased $3.0 million, or 13.2%, for the year ended September 30, 2019 as compared to the prior year period.

This increase

was primarily due to a $2.2 million increase in interest expense on borrowings.

Interest expense increased by 37.2% during the year ended

September 30, 2019, as compared to the prior year, primarily due to the issuance of $57.5 million aggregate principal amount of the 2023 Notes in November 2018 and an increase in the effective interest rate on our Credit Facility.

incurred $3.2 million in interest expense related to the 2023 Notes during the year ended September 30, 2019 versus no such amounts in the prior year period.

The weighted average balance outstanding on our Credit Facility decreased during

the year ended September 30, 2019 compared to the prior year period with the issuance of the 2023 Notes.

The weighted average balance outstanding during the year ended September 30, 2019, was $71.5 million, as compared to

$114.7 million in the prior year, a decrease of 37.7%.

The effective interest rate on our Credit Facility, including unused commitment fees incurred but excluding the impact of deferred financing costs, was 6.8% during the year ended

September 30, 2019, compared to 5.1% during the prior year.

The increase in the effective interest rate was driven by an increase in LIBOR as compared to the prior year period and an increase in unused commitment fees paid in the current year

period, partially offset by a decrease in the marginal interest rate on our Credit Facility effective March 9, 2018.

The net base management fee

earned by the Adviser decreased by $0.3 million, or 5.6%, during the year ended September 30, 2019, as compared to the prior year, resulting primarily from an increase in credits from the Adviser year over year, which are driven mainly by

origination fees on new deals closed during the year.

The net income-based incentive fee increased by $0.6 million, or 17.4%, for the year ended

September 30, 2019, as compared to the prior year, due to higher pre-incentive fee net investment income, partially offset by an increase in net assets, which drives the hurdle rate, over the prior year.

Our Board of Directors accepted a non-contractual, unconditional and irrevocable credit from the Adviser of $1.5 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 year ended September 30, 2019.

The credit granted during the year ended September 30, 2018, totaled $1.7 million.

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 accompanying Notes to Consolidated Financial Statements and are summarized in the following table:

Average total assets subject to base management fee (A)

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 accompanying Notes to Consolidated Financial Statements and are summarized in the following

Year Ended September 30,

Average total assets subject to base management

Multiplied by annual base management fee of 1.75%

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Loan servicing fee (B)

Credit to base management feeloan servicing fee (B)

Credit to base management feeloan servicing

Net Loan Servicing Fee

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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 four most recently completed quarters within the respective years and adjusted appropriately for any share issuances or

repurchases during the applicable year.

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.

Reflected, on a gross basis, as a line item on our accompanying Consolidated Statement of Operations

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For the year ended

September 30, 2018, we recorded a net realized loss on investments of $26.1 million, which resulted primarily from the restructure of our investment in Sunshine, previously on non-accrual status, and the associated recognition of a $28.2

million realized loss.

This was partially offset by a $0.7 million realized gain from the sale of a portion of our equity investment in Funko and a $0.6 million realized gain associated with the sale of our investment in Flight Fit N Fun LLC.

For the year ended September 30, 2017, we recorded a net realized loss on investments of $3.5 million, which resulted primarily from the sale of

substantially all the assets of RBC Acquisition Corp.

for a $2.3 million

realized loss and the write-off of $5.0 million on our investment in Sunshine, partially offset by the sale of Behrens Manufacturing, LLC (Behrens) for a $2.5 million realized gain

and a $1.2 million realized gain related to an additional earn-out from Funko, LLC, which we exited in the prior year.

Net Realized Loss on Other

We incurred a loss on extinguishment of debt of $1.3 million during the year ended September 30, 2017, which resulted from the write-off of

unamortized deferred issuance costs at the time of redemption of our 6.75% Series 2021 Term Preferred Stock in September 2017.

Net Unrealized

Appreciation of Investments

During the year ended September 30, 2018, we recorded net unrealized appreciation of investments in the aggregate

amount of $21.6 million.

realized loss, partially offset by the sale of our investment in ADC in August 2019 for an $8.7 million realized gain.

For the year ended

September 30, 2018, we recorded a net realized loss on investments of $26.1 million, which resulted primarily from the restructure of our investment in Sunshine Media Holdings (Sunshine), previously

on non-accrual status, and the associated recognition of a $28.2 million realized loss.

This was partially offset by a $0.7 million realized gain

from the sale of a portion of our equity investment in Funko Acquisition Holdings, LLC and a $0.6 million realized gain associated with the sale of our investment in Flight Fit N Fun LLC.

Net Unrealized Appreciation of Investments

year ended September 30, 2019, we recorded net unrealized appreciation of investments in the aggregate amount of $11.8 million.

The net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the year

ended September 30, 2019 were as follows:

Year Ended September 30, 2019

Portfolio Company

Realized Gain

(Depreciation)

(Appreciation)

Alloy Die Casting Co.

Defiance Integrated Technologies, Inc.

Targus Cayman HoldCo, Ltd.

Leeds Novamark Capital I, L.P.

The Mochi Ice Cream Company

Vision Government Solutions, Inc.

GFRC Holdings, LLC

Arc Drilling Holding LLC

Vacation Rental Pros Property Management, LLC

LDiscovery, LLC

Precision International, LLC

Canopy Safety Brands, LLC

Funko Acquisition Holdings, LLC

Chemical Technologies, Inc

FedCap Partners, LLC

Triple H Food Processors, LLC

Red Ventures, LLC

WadeCo Specialties, Inc.

Phoenix Aromas & Essential Oils, LLC

United Flexible, Inc.

Lignetics, Inc.

Sea Link International IRB, Inc.

DKI Ventures, LLC

Travel Sentry, Inc.

TNCP Intermediate HoldCo, LLC

Belnick, Inc.

EL Academies, Inc.

NetFortris Corp.

Imperative Holdings Corporation

Merlin International, Inc.

R2i Holdings, LLC

ENET Holdings, LLC

Antenna Research Associates, Inc.

Edge Adhesives Holdings, Inc.

Meridian Rack & Pinion, Inc.

FES Resources Holdings LLC

LWO Acquisitions Company LLC

Francis Drilling Fluids, Ltd.

Other, net (<$250)

The largest driver of our net unrealized appreciation of $11.8 million for the year ended September 30,

2019 was the reversal of previously recorded unrealized depreciation upon the restructure of FDF.

This appreciation was partially offset by the decline in the valuation of LWO Acquisitions Company LLC due to its financial and operational

During the year ended September 30, 2018, we recorded net unrealized appreciation of investments in the aggregate amount of

$21.6 million.

The net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the year ended September 30, 2018 were as follows:

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Other, net (<$250)

The primary drivers of our net unrealized appreciation for the year ended September 30, 2018, were the

reversal of previously recorded depreciation on our investment in Sunshine upon restructure and improved performance on certain of our portfolio companies, namely Edge Adhesives Holdings, Inc.

These factors were partially offset by a decline in

performance of certain of our other portfolio companies, namely FDF.

During the year ended September 30, 2017, we recorded net unrealized

appreciation of investments in the aggregate amount of $0.6 million.

The net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the year ended September 30, 2017, were as follows:

Year Ended September 30, 2017

Portfolio Company

Realized Gain

(Depreciation)

(Appreciation)

WadeCo Specialties, Inc.

SourceHOV LLC

Targus Cayman HoldCo, Ltd.

LWO Acquisitions Company, LLC

Flight Fit N Fun LLC

Vitera Healthcare Solutions, LLC

B+T Group Acquisition Inc.

Travel Sentry, Inc.

Leeds Novamark Capital I, L.P.

NetFortris Corp.

PSC Industrial Holdings Corp.

United Flexible, Inc.

Drumcree, LLC

Merlin International, Inc.

Vision Government Solutions, Inc.

TWS Acquisition Corporation

Westland Technologies, Inc.

Meridian Rack & Pinion, Inc.

LDiscovery, LLC

Edge Adhesives Holdings, Inc.

FedCap Partners, LLC

Behrens Manufacturing, LLC

New Trident Holdcorp, Inc.

Defiance Integrated Technologies, Inc.

RBC Acquisition Corp.

Vertellus Holdings LLC

Francis Drilling Fluids, Ltd.

Alloy Die Casting, Corp.

Sunshine Media Holdings

Other, net (<$250)

The primary drivers of our net unrealized appreciation for the year ended September 30, 2017, were an increase in the

value of WadeCo, increased performance on certain of our portfolio companies, and the reversal of previously recorded depreciation on our investment in Sunshine upon partial write-off.

These factors were

partially offset by a decline in performance and decrease in comparable multiples used in the valuation of certain of our other portfolio companies and the reversal of $3.2 million of previously

recorded unrealized appreciation on our investment in Behrens upon exit.

As of September 30, 2018, the fair value of our investment portfolio was

less than its cost basis by approximately $37.4 million and our entire investment portfolio was valued at 91.2% of cost, as compared to cumulative net unrealized depreciation of $59.1 million and a valuation of our entire portfolio at 85.6% of cost

as of September 30, 2017.

This year over year increase in the cumulative unrealized depreciation on investments represents net unrealized appreciation of $21.6 million for the year ended September 30, 2018.

The primary drivers of our net unrealized appreciation for the year ended September 30, 2018, were the reversal of

previously recorded depreciation on our investment in Sunshine upon restructure and improved performance

on certain of our portfolio companies, namely Edge Adhesives Holdings, Inc.

These factors were partially offset by a decline in performance of certain of our other portfolio companies, namely

As of September 30, 2019, the fair value of our investment portfolio was less than its cost basis by approximately $25.6 million and our

entire investment portfolio was valued at 94.0% of cost, as compared to cumulative net unrealized depreciation of $37.4 million and a valuation of our entire portfolio at 91.2% of cost as of September 30, 2018.

This year over year decrease

in the cumulative unrealized depreciation on investments represents net unrealized appreciation of $11.8 million for the year ended September 30, 2019.

The cumulative net unrealized depreciation of our investments does not have an impact on our current ability to pay distributions to stockholders;

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(Appreciation) Depreciation of Other

During the year ended September 30, 2018, we recorded $0.1 million of unrealized appreciation on our Credit

Facility at fair value as compared to $0.1 million of unrealized depreciation during the year ended September 30, 2017.

LIQUIDITY AND CAPITAL

During the year ended September 30, 2019, we recorded $0.2 million of unrealized depreciation on our

Credit Facility at fair value as compared to $0.1 million of unrealized appreciation during the year ended September 30, 2018.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

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 provided by operating activities for the year ended September 30, 2019 was $9.3 million as compared to net cash used in operating activities of

$17.8 million for the year ended September 30, 2018.

The change was primarily due to an increase in principal repayments and net proceeds from sales of investments partially offset by an increase in purchases of investments year over year.

Repayments and net proceeds from sales were $131.1 million during the year ended September 30, 2019 compared to $67.9 million during the year ended September 30, 2018.

Purchases of investments were $147.1 million during the year ended

September 30, 2019, compared to $106.6 million during the year ended September 30, 2018.

Net cash used in operating activities for the year

ended September 30, 2018 was $17.8 million as compared to $13.0 million for the year ended September 30, 2017.

The change was primarily due to a decrease in principal repayments and net proceeds from sales of investments partially offset

by a decrease in purchases of investments year over year.

Repayments and net proceeds from sales were $67.9 million during the year ended September 30, 2018 compared to $83.4 million during the year ended September 30, 2017.

investments was $106.6 million during the year ended September 30, 2018, compared to $112.1 million during the year ended September 30, 2017.

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.

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 year ended September 30, 2020 was $46.1 million as compared to net cash provided by operating

activities of $9.3 million for the year ended September 30, 2019.

The change was primarily due to a decrease in principal repayments and net proceeds from sales of investments.

Repayments and net proceeds from sales were $78.8 million

during the year ended September 30, 2020 compared to $131.1 million during the year ended September 30, 2019.

Net cash provided by

operating activities for the year ended September 30, 2019 was $9.3 million as compared to net cash used in operating activities of $17.8 million for the year ended September 30, 2018.

The change was primarily due to an increase

in principal repayments and net proceeds from sales of investments partially offset by an increase in purchases of investments year over year.

Repayments and net proceeds from sales were $131.1 million during the year ended September 30,

2019 compared to $67.9 million during the year ended September 30, 2018.

Purchases of investments were $147.1 million during the year ended September 30, 2019, compared to $106.6 million during the year ended

September 30, 2018.

As of September 30, 2020, we had loans to, syndicated participations in or equity investments in 48 companies, with an

aggregate cost basis of approximately $494.6 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 years ended September 30,

2019 and 2018:

The following table summarizes our total portfolio investment activity during the years ended September 30, 2020 and 2019:

Year Ended September 30,

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Ending Investment Portfolio, at Fair Value

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 September 30, 2019.

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 September 30, 2020.

Year Ending September 30,

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Financing Activities

Net cash provided by financing activities for the year ended September 30, 2019 was $4.5 million, which consisted primarily of $57.5 million in gross

proceeds from the issuance of the 2023 Notes and $17.2 million in gross proceeds from the issuance of common stock, partially offset by $43.1 million in net repayments on our Credit Facility and $24.6 million in distributions to common stockholders.

Net cash provided by financing activities for the year ended September 30, 2018 was $14.5 million, which consisted primarily of $17.0 million in net

borrowings on our Credit Facility and $22.0 million in gross proceeds from the issuance of common stock, partially offset by $22.8 million in distributions to common stockholders.

Net cash provided by financing activities for the year ended September 30, 2017 was $11.7 million, which consisted primarily of $21.7 million in net

borrowings on our Credit Facility and $23.7 million in gross proceeds

from the issuance of common stock, partially offset by $21.4 million in distributions to common stockholders and a net decrease of $9.3 million in term preferred stock due to the redemption of

our Series 2021 Term Preferred Stock and issuance of a lesser amount of Series 2024 Term Preferred Stock.

Net cash provided by financing activities for the year ended September 30, 2020 was $32.8 million, which consisted primarily of $61.1 million in

net borrowings on our Credit Facility and $38.8 million in gross proceeds from the issuance of notes payable, partially offset by $51.8 million used in the redemption of our Series 2024 Term Preferred Stock and $25.2 million in

distributions to common shareholders.

Net cash provided by financing activities for the year ended September 30, 2019 was $4.5 million, which

consisted primarily of $57.5 million in gross proceeds from the issuance of the 2023 Notes and $17.2 million in gross proceeds from the issuance of common stock, partially offset by $43.1 million in net repayments on our Credit

Facility and $24.6 million in distributions to common stockholders.

Net cash provided by financing activities for the year ended September 30,

2018 was $14.5 million, which consisted primarily of $17.0 million in net borrowings on our Credit Facility and $22.0 million in gross proceeds from the issuance of common stock, partially offset by $22.8 million in distributions

to common stockholders.

Distributions to Stockholders

Common Stock Distributions

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 years ended September 30, 2019, 2018

and 2017, which totaled an aggregate of $24.6 million, $22.8 million and $21.4 million, respectively.

In October 2019, our Board of Directors declared a monthly distribution of $0.07 per common share for each of October, November and December 2019.

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, during the year ended September 30, 2020, we paid monthly cash distributions of $0.07 per common share for the months of October 2019 through

March 2020 and paid monthly cash distributions of $0.065 per common share for the months of April 2020 through September 2020.

These distributions totaled an aggregate of $25.2 million.

During the years ended September 30, 2019 and 2018,

we paid monthly cash distributions of $0.07 per common share for each month, which totaled an aggregate of $24.6 million and $22.8 million, respectively.

In October 2020, our Board of Directors declared a monthly distribution of $0.065 per

common share for each of October, November, and December 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,

From inception through September 30, 2019, we have paid

200 monthly or quarterly consecutive distributions to common stockholders totaling approximately $345.1 million or $19.45 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.

For each of the fiscal years ended September 30,

2018, and 2017, our current and accumulated earnings and profits (after taking into account our mandatorily redeemable preferred stock dividends), exceeded common stock distributions declared and paid, and, in accordance with Section 855(a) of

the Code, we elected to treat $0.3 million of the first common distributions paid to common stockholders in the respective subsequent fiscal year as having been paid in the respective prior year.

Preferred Stock Dividends

Our Board of Directors

declared and we paid monthly cash dividends of $0.125 per share to holders of our Series 2024 Term Preferred Stock for each month during the years ended September 30, 2019 and 2018, which totaled an aggregate of $3.1 million during each of the

years ended September 30, 2019 and 2018.

In accordance with GAAP, we treat these monthly dividends as an operating expense.

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.

Such a characterization made on an interim, quarterly basis may not be representative of the actual tax characterization for the full year.

From inception through September 30, 2020, we have paid 212 monthly or quarterly consecutive distributions to common stockholders totaling approximately $370.3 million or $20.26 per share.

For the fiscal years ended September 30, 2020 and 2019, distributions declared and paid exceeded taxable

income available for common distributions resulting in a partial return of capital of approximately $0.4 million and $0.7 million, respectively.

For the fiscal year ended September 30, 2018, our current and accumulated earnings and

profits (after taking into account our mandatorily redeemable preferred stock dividends), exceeded common stock distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $0.3 million of the

first common distributions paid to common stockholders in the subsequent fiscal year as having been paid in the prior year.

Preferred Stock

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 GAAP, we treated these monthly dividends as an operating expense.

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

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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 stockholders 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.

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 stockholders account.

Computershare purchases shares in the open market in connection with the obligations under the plan.

Registration Statement

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securities under the registration statement.

In February 2015, we entered into an equity distribution agreement with Cantor Fitzgerald & Co.

(the Cantor Sales Agreement) under which

we had 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 in what is commonly referred to as an ATM program.

During the three months ended December 31, 2018, we sold

2,765 shares of our common stock under the Cantor Sales Agreement, at a weighted-average price of $9.60 per share and raised approximately $28 thousand of gross and net proceeds.

In February 2019, we terminated the Cantor Sales Agreement and entered into a new 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 year ended September 30, 2019, we sold 1,841,178 shares of our

common stock under the Jefferies Sales Agreement, at a weighted-average price of $9.35 per share and raised $17.2 million of gross proceeds.

Net proceeds, after deducting commissions and offering costs borne by us, were approximately $17.0

As of September 30, 2019, we had a remaining capacity to sell up to an additional $32.8 million of our common stock under the Jefferies Sales Agreement.

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 year ended September 30, 2020, we sold 1,220,927 shares of our common stock under the Jefferies Sales

Agreement, at a weighted-average price of $9.55 per share and raised $11.7 million of gross proceeds.

Net proceeds, after deducting commissions and offering costs borne by us, were approximately $11.4 million.

As of September 30,

2020, we had a remaining capacity to sell up to an additional $21.1 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 September 30, 2019, the closing market price of our common stock was $9.75, an 18.6% premium to our September 30, 2019 NAV per share of $8.22.

Term 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 have been recorded as discounts to the liquidation value on our Consolidated Statements of Assets and Liabilities .

The offering proceeds plus borrowings under our Credit Facility were used to voluntarily redeem all 2.4 million

outstanding shares of our then existing Series 2021 Term Preferred Stock.

In connection with the voluntary redemption of our Series 2021 Term Preferred Stock, we incurred a loss on extinguishment of debt of $1.3 million, which has been reflected in

Realized loss on other in our Consolidated Statement of Operations and which is primarily comprised of the unamortized deferred issuance costs at the time of redemption.

The shares of our Series 2024 Term Preferred Stock were traded under the ticker symbol GLADN on

Nasdaq as of September 30, 2019.

Our Series 2024 Term Preferred Stock was not convertible into our common stock or any other security and provided for a fixed dividend equal to 6.00% per year, payable monthly (which equated in total to

approximately $3.1 million per year).

We would have been required to redeem all of the outstanding Series 2024 Term Preferred Stock on September 30, 2024 for cash at a redemption price equal to $25.00 per share plus an amount equal to all

unpaid dividends and distributions per share accumulated to (but excluding) the date of redemption (the Redemption Price).

We may additionally have been required to mandatorily redeem some or all of the shares of our Series 2024 Term

Preferred Stock early, at the Redemption Price, in the event of the following:

(1) upon the occurrence of certain events that would constitute a change in control, or (2) if we failed to maintain an asset coverage of at least 150% on our

senior securities that are stock (which was only our Series 2024 Term Preferred Stock as of September 30, 2019) and the failure remained for a period of 30 days following the filing date of our next quarterly or annual report filed

with the SEC.

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 payment per share of $25.004166 and an aggregate redemption price of

approximately $51.8 million.

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 September 30, 2020, the closing market price of our common stock was $7.41 per share, a 0.1% premium to our September 30, 2020 NAV per share of

Revolving Credit Facility

April 29, 2020, we, through Business Loan, entered into Amendment No.

6 to our Credit Facility with KeyBank, which extended the revolving period end date by approximately six months to July 15, 2021, included certain LIBOR transition

considerations and decreased the commitment amount from $190 million to $180 million.

All principal and interest will continue to be due and payable on April 15, 2022.

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.

The Credit Facility continues to include customary terms, covenants, events of default and constraints on borrowing availability based on collateral tests for a credit facility of its size and

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 Facilitys revolving period end date of January 15, 2021.

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%.

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 Facilitys revolving period end date of July 15, 2021.

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

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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 $270.1

million as of September 30, 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.

As of September 30, 2019, and

as defined in the performance guaranty of our Credit Facility, we had a net worth of $354.6 million, asset coverage on our senior securities representing indebtedness of 336.9% and an active status as a BDC and RIC.

In addition, we had

37 obligors in our Credit Facilitys borrowing base as of September 30, 2019.

As of September 30, 2019, we were in compliance with all of our Credit Facility covenants.

Refer to Note 5 Borrowings of the notes to our

Consolidated Financial Statements included elsewhere in this annual report for additional information regarding our Credit Facility.

In November 2018, we completed a public debt offering of $57.5 million aggregate principal amount of the 2023 Notes, inclusive of the

overallotment, for net proceeds of $55.4 million after deducting underwriting discounts, commissions and offering expenses borne by us.

We incurred approximately $2.1 million in total underwriting discounts and offering costs related to the

issuance of the 2023 Notes, which have been recorded as discounts to the principal amount on our Consolidated Statements of Assets and Liabilities and are being amortized from issuance through November 1, 2023, the maturity date.

offering proceeds were used to pay down borrowings under our Credit Facility.

The 2023 Notes are traded under the ticker symbol GLADD on

The 2023 Notes will mature on November 1, 2023, and may be redeemed in whole or in part at any time or from time to time at the Companys option on or after November 1, 2020.

The 2023 Notes bear interest at a rate of

6.125% per year payable quarterly on February 1, May 1, August 1, and November 1 of each year (which equates to approximately $3.5 million per year).

The 2023 Notes are recorded at the principal amount, less

discounts, on our Consolidated Statements of Assets and Liabilities as of September 30, 2019.

The indenture relating to the 2023 Notes

contains certain covenants, including (i) an inability to incur additional debt or issue additional debt or preferred securities unless the Companys asset coverage meets the threshold specified in the 1940 Act after such borrowing,

(ii) an inability to declare any dividend or distribution unless the Companys asset coverage meets the threshold specified in the 1940 Act at the time of such declaration, 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 2023 Notes and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements.

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.

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

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 required to maintain (i) a minimum net worth 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 $269.5 million as of September 30, 2020, (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

As of September 30, 2020, and as defined in our Credit Facility, we had a net worth of $327.3 million, asset coverage on our

senior securities representing indebtedness of 202.6% and an active status as a BDC and RIC.

In addition, we had 31 obligors in our Credit Facilitys borrowing base as of September 30, 2020.

As of September 30, 2020, we

were in compliance with all of our Credit Facility covenants.

Refer to Note 5 Borrowings of the notes to our Consolidated Financial Statements included elsewhere in this Annual Report for additional information regarding our

Credit Facility.

Notes Payable

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 Companys 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 Companys 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 Companys 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 September 30, 2019 and 2018, we had off-balance sheet success fee

receivables on our accruing debt investments of $6.2 million and $5.1 million (or approximately $0.21 per common share and $0.18 per common share), respectively, that would be owed to us, generally upon a change of control of the portfolio

As of September 30, 2020 and 2019, we had

off-balance sheet success fee receivables on our accruing debt investments of $9.9 million and

$6.2 million (or approximately $0.31 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.

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

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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, 2019 and September 30, 2018 to be immaterial.

following table shows our contractual obligations as of September 30, 2019, at cost:

unused delayed draw term loans, and the uncalled capital commitment as of September 30, 2020 and 2019 to be immaterial.

The following table shows

our contractual obligations as of September 30, 2020, at cost:

Payments Due by Period

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Credit Facility (B)

Mandatorily Redeemable Preferred Stock

Notes Payable

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obligations (C)

Excludes our unused line of credit commitments, an unused delayed draw term loan and uncalled capital

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 $27.8 million, at cost, as of September 30, 2020.

Principal balance of borrowings outstanding under our Credit Facility, based on the current contractual

revolver period end date to the revolving nature of the facility.

Includes estimated interest payments on our Credit Facility and 2023 Notes and dividend obligations on our

Series 2024 Term Preferred Stock.

The amount of interest expense calculated for purposes of this table was based upon rates and balances as of September 30, 2019.

Dividend payments on our Series 2024 Term Preferred Stock assume quarterly

dividend declarations and monthly dividend distributions through the date of mandatory redemption.

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 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 Annual Report.

Additionally, refer to Note 3 Investments in our accompanying Notes to

Consolidated Financial Statements included elsewhere in this Annual 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 Annual Report.

Principal balance of borrowings outstanding under our Credit Facility, based on the maturity date following the

current contractual revolver period end date.

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 September 30, 2020.

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.

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 Annual Report.

Additionally, refer to Note 3 Investments in

our accompanying Notes to Consolidated Financial Statements included elsewhere in this Annual 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 Annual Report.

Investment Valuation

Credit Monitoring and

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.

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 NRSROs 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 Advisers risk rating system will provide the same risk rating as an NRSRO would for these 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 NRSROs 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 Advisers risk

rating system will provide the same risk rating as an NRSRO would for these securities.

The Advisers risk rating system is used to estimate the probability of default on debt securities and the expected loss if there is a default.

The Advisers risk rating system uses a scale of 0 to >10, with >10 being the lowest

probability of default.

It is the Advisers 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 Advisers 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 Advisers scale

is equal to a BBB or Baa2 on an NRSRO scale.

The Advisers 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 September 30, 2019 and 2018, representing approximately 87.7%

and 92.3%, respectively, of the principal balance of all debt investments in our portfolio at the end of each fiscal year:

Advisers risk rating system uses a scale of 0 to >10, with >10 being the lowest probability of default.

It is the Advisers 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 Advisers 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 Advisers scale is equal to a BBB or Baa2 on an NRSRO scale.

The Advisers 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

September 30, 2020 and 2019, representing approximately 92.7% and 87.7%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:

As of September 30,

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The following table reflects the risk ratings for all syndicated loans in our portfolio that were rated by an NRSRO as of

September 30, 2019 and 2018, representing approximately 9.1% and 5.7%, respectively, of the principal balance of all debt investments in our portfolio at the end of each fiscal year:

September 30, 2020 and 2019, representing approximately 5.4% and 9.1%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:

As of September 30,

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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, 2019 and 2018, representing approximately 3.2% and 2.0%, respectively, of the principal balance of all debt investments in our portfolio at the end of each fiscal year:

NRSRO as of September 30, 2020 and 2019, representing approximately 1.9% and 3.2%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:

As of September 30,

7 unchanged sentences

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What changed 10-K

Item 5. Market for Registrant’s Common Equity