GLADSTONE CAPITAL CORP

Gladstone Capital Corporation is an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940 and as a regulated investment company under Subchapter M of the Internal Revenue Code. The company was established for the purpose of investing in debt and equity securities of established private businesses operating in the United States. Its investment portfolio as of September 30, 2025 consisted of investments in 55 companies located in 22 states across 16 different industries, with an aggregate fair value of $859.1 million ¹. The five largest investments at fair value as of September 30, 2025 totaled $196.5 million ², or 22.9% ³ of the total investment portfolio. The company's targeted portfolio companies are generally considered too small for the larger capital marketplace, and it seeks to avoid investing in high-risk, early-stage enterprises.

The company competes with other BDCs, registered investment companies, private investment funds, commercial banks, and other financing sources. Many competitors are substantially larger and have considerably greater funding sources or are able to access capital more cost effectively. The company believes its competitive advantages include management expertise through its Adviser's investment committee, increased access to investment opportunities developed through an extensive research capability and network of contacts, a disciplined value and income-oriented investment philosophy with a focus on preservation of capital, a longer investment horizon as an exchange-traded corporation of perpetual duration, and flexible transaction structuring. The Adviser's investment committee for the company is comprised of David Gladstone, Robert L. Marcotte, Laura Gladstone, and John Sateri, each of whom have a wealth of experience in the company's area of operation, with Ms. Gladstone having over 20 years of experience and each of Messrs. Gladstone, Marcotte and Sateri having over 30 years of experience in investing in middle market companies.

The company generates revenue primarily through interest income on debt securities and, to a lesser extent, through dividends and capital gains on equity investments. Its primary investment strategy is to invest in several categories of debt and equity securities, with each investment generally ranging from $8 million to $40 million ⁴, although investment size may vary depending upon total assets or available capital at the time of investment. The company lends to borrowers that need funds for growth capital, to finance acquisitions, or to recapitalize or refinance their existing debt facilities. The company expects that its investment portfolio over time will consist of approximately 90.0% ⁵ debt investments and 10.0% ⁶ equity investments, at cost. As of September 30, 2025, the investment portfolio was made up of approximately 90.9% ⁷ debt investments and 9.1% ⁸ equity investments, at cost. The company invests by itself or jointly with other funds and/or management of the portfolio company, depending on the opportunity.

The company's investment portfolio primarily includes three categories of investments in private companies operating in the U.S.: secured first lien debt securities, secured second lien debt securities, and preferred and common equity/equivalents. As of September 30, 2025, secured first lien debt investments had a cost of $646,131 thousand ⁹ and a fair value of $622,371 thousand ¹⁰, representing 72.4% ¹¹ of total investments at fair value. Secured second lien debt investments had a cost of $149,937 thousand ¹² and a fair value of $150,542 thousand ¹³, representing 17.5% ¹⁴ of total investments at fair value. Unsecured debt investments had a cost of $555 thousand ¹⁵ and a fair value of $333 thousand ¹⁶, representing 0.1% ¹⁷ of total investments at fair value. Total debt investments had a cost of $796,623 thousand ¹⁸ and a fair value of $773,246 thousand ¹⁹, representing 90.0% ²⁰ of total investments at fair value. Preferred equity investments had a cost of $37,429 thousand ²¹ and a fair value of $31,214 thousand ²², representing 3.6% ²³ of total investments at fair value. Common equity/equivalents had a cost of $42,562 thousand ²⁴ and a fair value of $54,664 thousand ²⁵, representing 6.4% ²⁶ of total investments at fair value. Total equity investments had a cost of $79,991 thousand ²⁷ and a fair value of $85,878 thousand ²⁸, representing 10.0% ²⁹ of total investments at fair value.

The company's investments at fair value by industry classification as of September 30, 2025 included Healthcare, Education, and Childcare at $273,262 thousand ³⁰ (31.8% ³¹), Diversified/Conglomerate Manufacturing at $202,466 thousand ³² (23.6% ³³), Diversified/Conglomerate Service at $152,042 thousand ³⁴ (17.7% ³⁵), Beverage, Food, and Tobacco at $54,605 thousand ³⁶ (6.4% ³⁷), Home and Office Furnishings, Housewares and Durable Consumer Products at $30,000 thousand ³⁸ (3.5% ³⁹), Automobile at $27,361 thousand ⁴⁰ (3.2% ⁴¹), Machinery at $26,381 thousand ⁴² (3.1% ⁴³), Personal, Food, and Miscellaneous Services at $23,700 thousand ⁴⁴ (2.7% ⁴⁵), Cargo Transportation at $20,000 thousand ⁴⁶ (2.3% ⁴⁷), Oil and Gas at $17,512 thousand ⁴⁸ (2.0% ⁴⁹), Personal and Non-Durable Consumer Products at $13,866 thousand ⁵⁰ (1.6% ⁵¹), Printing and Publishing at $5,809 thousand ⁵² (0.7% ⁵³), Aerospace and Defense at $1,184 thousand ⁵⁴ (0.1% ⁵⁵), and Other at $10,936 thousand ⁵⁶ (1.3% ⁵⁷). By geographic region, the South represented $287,371 thousand ⁵⁸ (33.5% ⁵⁹), the Midwest $237,417 thousand ⁶⁰ (27.6% ⁶¹), the West $233,564 thousand ⁶² (27.2% ⁶³), and the Northeast $100,772 thousand ⁶⁴ (11.7% ⁶⁵).

During the fiscal year, the company engaged in various investment activities. New investments included B+T Group Acquisition, Inc., Edge Adhesives Holdings, Inc., and WB Xcel Holdings, LLC. As of September 30, 2025, loans to B+T Group Acquisition, Inc., Edge Adhesives Holdings, Inc., and WB Xcel Holdings, LLC were on non-accrual status with a cost basis of $28.8 million ⁶⁶, or 3.6% ⁶⁷ of the cost basis of all debt investments in the portfolio, and a fair value of $13.0 million ⁶⁸, or 1.7% ⁶⁹ of the fair value of all debt investments in the portfolio. The company recorded $0.4 million ⁷⁰ of original issue discount income during the year ended September 30, 2025, and the unamortized balance of OID investments as of September 30, 2025 totaled $0.2 million ⁷¹. As of September 30, 2025, the company had nine investments which had a PIK interest component and recorded PIK interest income of $5.0 million ⁷² during the year. The company's Board of Directors accepted non-contractual, unconditional and irrevocable credits from the Adviser to reduce the income-based incentive fee to the extent net investment income did not cover 100.0% of distributions to common stockholders for the years ended September 30, 2025 and 2024, which credits totaled $2.3 million ⁷³ and $0.2 million ⁷⁴, respectively.

For the fiscal year ended September 30, 2025, total investment income was not explicitly stated in the filing as a single headline figure in the summary sections, but the company's investment portfolio at fair value was $859.1 million ⁷⁵ as of September 30, 2025, compared to $796.3 million ⁷⁶ as of September 30, 2024. The company's net asset value per share and other key financial metrics are detailed in the financial statements. The company's net investment income and net realized and unrealized gains/losses are discussed in the financial details section. The company's total investments at cost were $876,614 thousand ⁷⁷ as of September 30, 2025, compared to $771,011 thousand ⁷⁸ as of September 30, 2024.

The company's primary growth vector is to continue investing in debt and equity securities of established lower middle market companies, which it generally defines as companies with annual EBITDA of $3 million to $25 million ⁷⁹. The company seeks to invest in several categories of debt and equity securities, with each investment generally ranging from $8 million to $40 million ⁸⁰. The company lends to borrowers that need funds for growth capital, to finance acquisitions, or to recapitalize or refinance their existing debt facilities. The company expects that its investment portfolio over time will consist of approximately 90.0% ⁸¹ debt investments and 10.0% ⁸² equity investments, at cost. The company also benefits from a Co-Investment Order granted by the SEC in September 2025 that expanded its ability to co-invest with certain affiliates, which the company believes has enhanced and will continue to enhance its ability to further its investment objectives and strategies.

The company's growth strategy also includes leveraging its extensive referral network comprised primarily of private equity sponsors, private credit managers, venture capitalists, leveraged buyout funds, investment bankers, attorneys, accountants, commercial bankers, and business brokers to originate investments. The Adviser's investment professionals actively oversee each investment by continuously evaluating the portfolio company's performance and working collaboratively with the portfolio company's management. The company expects to hold most of its debt investments until maturity or repayment, but may sell investments earlier if a liquidity event takes place, such as the sale or recapitalization of a portfolio company. The company may also sell some or all of its investment interests in a portfolio company to a third party in a privately negotiated transaction to manage credit or sector exposures or to enhance portfolio yield.

The filing does not contain specific margin or cost outlook figures or targets for the upcoming period.

The filing does not contain specific operational outlook details regarding supply chain, manufacturing capacity, technology infrastructure investments, or headcount strategy.

The base management fee is payable quarterly to the Adviser at an annual rate of 1.75% ⁸³, computed on the basis of the value of the company's average total assets at the end of the two most recently-completed quarters, less any uninvested cash or cash equivalents resulting from borrowings and adjusted appropriately for any share issuances or repurchases during the period. The Board of Directors may accept a non-contractual, unconditional and irrevocable credit from the Adviser to reduce the annual 1.75% base management fee on syndicated loan participations to 0.5% ⁸⁴, to the extent that proceeds resulting from borrowings were used to purchase such syndicated loan participations. The income-based incentive fee rewards the Adviser if the company's quarterly net investment income exceeds 1.75% ⁸⁵ of net assets (the hurdle rate), with a 100.0% ⁸⁶ catch-up provision up to 2.1875% ⁸⁷ of net assets, and 20.0% ⁸⁸ of any excess above that. The capital gains-based incentive fee equals 20.0% ⁸⁹ of net realized capital gains. The company's Board of Directors accepted non-contractual, unconditional and irrevocable credits from the Adviser to reduce the income-based incentive fee to the extent net investment income did not cover 100.0% of distributions to common stockholders for the years ended September 30, 2025 and 2024, which credits totaled $2.3 million ⁹⁰ and $0.2 million ⁹¹, respectively.

The company faces headwinds from market conditions that could negatively impact its business, results of operations, cash flows and financial condition. These include changes in interest rates and credit spreads, the effects of inflation on the company and its portfolio companies, the availability of credit, default rates on loans, prepayment rates, competition, and the actual and perceived state of the economy and capital markets generally. Tariffs imposed on foreign goods imported by the U.S. or on U.S. goods imported by foreign countries could subject the company or its portfolio companies to additional risks, including increased cost of production for certain portfolio companies or reduced demand for their products. The company may experience fluctuations in its quarterly and annual results based on the impact of inflation in the U.S., as certain portfolio companies are in industries that have been and may be impacted by inflation, such as consumer goods and services and manufacturing.

The company faces constraints from the competitive market for investment opportunities, as a large number of entities compete with it for first and second lien secured debt, which can result in reduced yields on investment. Many competitors are substantially larger and have considerably greater financial, technical and marketing resources. Some competitors may have a lower cost of funds and access to funding sources not available to the company, and some may have higher risk tolerances or different risk assessments. The company also faces risks related to interest rate changes, as a substantial portion of its debt investments have variable interest rates that reset periodically and are generally based on SOFR. As of September 30, 2025, based on the total principal balance of debt investments outstanding, the portfolio consisted of approximately 86.9% ⁹² of loans at variable rates with floors and approximately 13.1% ⁹³ at fixed rates. The company did not have any hedging arrangements in place as of September 30, 2025.

Investments in lower middle market companies are extremely risky and could cause loss of all or part of an investment. As of September 30, 2025, loans to B+T Group Acquisition, Inc., Edge Adhesives Holdings, Inc., and WB Xcel Holdings, LLC were on non-accrual status with a cost basis of $28.8 million ⁹⁴, or 3.6% ⁹⁵ of the cost basis of all debt investments, and a fair value of $13.0 million ⁹⁶, or 1.7% ⁹⁷ of the fair value of all debt investments. Changes in interest rates may negatively impact investments, as a substantial portion of debt investments have variable rates based on SOFR; as of September 30, 2025, approximately 86.9% ⁹⁸ of loans were at variable rates with floors and 13.1% ⁹⁹ at fixed rates, and the company had no hedging arrangements in place. The lack of liquidity of privately held investments may adversely affect the business, as substantially all investments are subject to legal and other restrictions on resale. The company operates in a highly competitive market for investment opportunities, with many competitors being substantially larger and having considerably greater funding sources. The company's portfolio is concentrated in a limited number of companies and industries, with the five largest investments at fair value totaling $196.5 million ¹⁰⁰, or 22.9% ¹⁰¹ of the total investment portfolio as of September 30, 2025.

Management's message emphasizes the company's investment objectives to achieve and grow current income by investing in debt securities of established lower middle market companies in the U.S. that are believed to provide stable earnings and cash flow to pay expenses, make principal and interest payments on outstanding indebtedness, and make distributions to stockholders, and to provide stockholders with long-term capital appreciation in the value of assets by investing in equity securities. The strategic priorities emphasized include maintaining the company's status as a BDC and RIC, continuing to invest in a diversified portfolio of debt and equity securities across multiple industries and geographic regions, and leveraging the Adviser's extensive experience and network to originate and manage investments. The company's Board of Directors approved the renewal of the Advisory Agreement through August 31, 2026, and the renewal of the Administration Agreement through August 31, 2026, after considering factors including the nature, extent and quality of services provided by the Adviser, investment performance, costs of services, economies of scale, and the overall fairness of advisory fees.